Bull market concept. Stock market candlestick bar chart on monitor display. Shallow depth of field.
With the ever-growing list of similar-sounding ETFs, it’s becoming increasingly difficult to find the best one. How can investors change the rules of the game and put the odds in their favor?
Don’t trust the labels of style ETFs
There are at least 209 different All Cap Blend ETFs and at least 812 ETFs in twelve styles. Do investors, on average, need more than 68 choices per style? How different can the ETFs be?
These 209 All Cap Blend ETFs vary greatly from one another. With between 7 and 3,663 holdings, many of these All Cap Blend ETFs have drastically different portfolios with different risk profiles and performance outlooks.
The same is true for ETFs of other styles, as each offers a very different mix of good and bad stocks. All Cap Value ranks first in stock selection. Small Cap Growth ranks last.
Avoiding analysis paralysis
I think the large number of style ETFs is doing more harm than good to investors. Manually performing a thorough analysis of each ETF is simply not a realistic option. It exposes investors to inadequate analysis and misses out on lucrative opportunities. Thoroughly analyzing ETFs is far more difficult than analyzing stocks because all of the stocks in each ETF must be analyzed. As mentioned above, an ETF can contain as many as 3,663 stocks or more.
Figure 1 shows the top-rated ETF for each style.
Figure 1: The best ETFs for each style
Best Style ETFs 3Q24
* The best ETFs exclude ETFs with TNAs below $100 million due to insufficient liquidity.
Among the ETFs in Figure 1, the Euclidean Fundamental Value ETF (ECML) ranks first, the Alpha Architect US Quantitative Value ETF (QVAL
Alpha Architect US Quantitative Value ETF
How to avoid “the danger within”
”Why do you need to know ETF holdings before you buy?
You need to be sure you are not buying an ETF that has the potential to bust. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap the ETF is, if it holds bad stocks, the performance will be poor.
PERFORMANCE OF FUND HOLDINGS – FEES
WisdomTree US SmallCap Fund
If only investors could find funds that are valued according to their holdings
The Euclidean Fundamental Value ETF (ECML) is not only the highest-rated all-cap value ETF, but also the highest-rated overall style ETF among the 812 style ETFs my firm covers.
The worst ETF in Figure 1 is the iShares Morningstar Mid-Cap Growth ETF (IMCG), which receives an attractive rating.
Disclosure: David Trainer, Kyle Guske II and Hakan Salt do not receive compensation to write about specific stocks, sectors or topics.
