ETF ratings and metrics

In evaluating an exchange-traded fund (ETF), you should look at the prospects for the underlying investment target (index), and at how the ETF fits into your overall portfolio strategy. In addition, the following may be worth considering:

  • Several firms have started publishing ETF ‘ratings,’ similar to mutual fund ratings. The predictive value of such rankings is subject to debate, however, because they’re primarily based on historical performance. Nevertheless, some of these tools may enable useful comparisons with similar index mutual funds.
  • For equity (stock) ETFs, investors may attempt to analyze fundamental metrics of the underlying portfolio such as aggregate price-to-earnings ratios. However, different fund sponsors may calculate these ratios differently, making apples-to-apples comparisons difficult (some funds include unprofitable companies in their aggregate P/E calculation, for example, and others don’t).