How to compare similar ETFs

With new exchange-traded funds (ETFs) coming on the market weekly, critics have complained about 'look-alike ETFs' from competing companies that purport to track identical indexes or asset classes. Here's some tips for comparing seemingly similar ETFs:

  • Look at each ETF's sponsor company. What's their track record and reputation?
  • Look at each ETF's size (net assets invested). Although bigger is not necessarily better, scale does confer some cost advantages and also implies some degree of market confidence.
  • Be sure you fully understand each ETF's index and strategy. Two ETFs might be based on the same index, for example, but one might use an 'equal weighted' strategy and the other a 'capitalization-weighted' strategy, with very different outcomes.
  • Check each ETF's management fee.