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ETF search: How to analyse and find the best ETFs!

Your ETF search can be a big challenge. This makes it all the more important to know which key figures and aspects we should pay attention to. No problem! Today we take a close look at how we can analyse an ETF candidate!

If you are interested in such tips and tricks or have questions about financial topics, you should also take a look at our forum for personal loans. There you can exchange ideas with other investors and certainly learn something new!

How do I find the best ETFs?

In Germany, we can choose from over 1,500 authorised ETFs – a real luxury, but one that also presents us with problems. Because in this sea of products, we have to find the right candidate.

Today we want to take a closer look at the best way to do this. To do this, we mainly use two free search engines for ETFs: justETF and the TrackingDifferences.com site.

Here, however, we receive a wealth of information on all ETFs, which makes it difficult for laypeople (and sometimes even professionals) to form an opinion. We therefore want to go through the selection today using two practical examples.

Practical example: The selection of a global ETF

As ETFs ‘only’ track an index according to predefined rules, they are generally much cheaper than funds or other manually managed financial products. However, this does not mean that you automatically get the best price or can simply choose an ETF blindly!

We therefore want to analyse an ETF candidate using a specific example: the purchase of an MSCI World ETF. To do this, we go directly to the home page of justETF and then click on ‘ETF search’:

A total of 1559 products await us if we do not create any filters. If we use ‘MSCI World’ as a search term, all products with this designation are displayed as expected.

The three most important criteria

In addition to the operator of the ETF, however, there are other important aspects that I would like to adjust: for me personally, only distributing products come into question. This means that if there is a dividend, it should go to me and not be reinvested.

This has the advantage of making it easier to balance my portfolio, for example: If the MSCI World grows too much in my portfolio and takes up too large an amount, I can simply invest the dividend in another product.

Another point that I consider very important is a minimum size of 100 million euros. The profitability for the operator may well be doubtful with smaller sums and lead to closure.

The third aspect is the so-called replication method. We have a choice here:

  • Complete

This method involves buying all the stocks in the index. In the case of our MSCI World, this also applies to the smallest shares around the world, which would usually incur a high transaction fee.

  • Sampling

Here, too, (almost) all shares are bought, but the very smallest are left out, which saves considerable costs.

  • Swap based

Here there is a swap counterparty (usually a bank) that is obliged to provide the performance of the index on a daily basis. As investors, we have a low risk, which is why I only use this option if the cost advantage is really high.

My personal favourite is the sampling method, as it represents the best compromise between costs and risks.

Filtering and selection

After setting our criteria for size, distribution and replication, we are left with 4 ETFs in the search results:

Of course, there are also helpful filters that we can now use, for example to sort based on the Total Expense Ratio (TER), i.e. the costs. The result is quickly clear: HSBC’s ETF is the cheapest at 0.15 % per year.

However, if we sort by performance, we should expect roughly the same results from all candidates – after all, they track the same index! Nevertheless, we find some differences between the best (Xtrackers, 7.28%) and the worst (iShares, 6.93%) MSCI World ETF.

But now it’s time to analyse the four ETFs in detail. We are particularly interested in the ISIN, which identifies a financial product internationally, and the WKN, the German securities identification number.

This should be noted

When searching for the best ETF, we must bear in mind that not all the information we find on the Internet is automatically correct. In particular, the data on justETF is provided without guarantee and must be researched separately in case of doubt.

It is therefore all the more important to find the exact ETF based on the ISIN or WKN and to obtain the corresponding factsheet from the operator. Only this information is ultimately reliable and should be the basis for our choice.

This is because minor – and sometimes major – discrepancies, outdated or simply missing data can quickly be found. This also affects websites and even brokers that are otherwise very professional. The reliability of the information is therefore extremely important when making an ETF decision.

By comparing a few key figures (e.g. annual performance), we can be sure that everything is above board. If there are any noticeable discrepancies, we should keep our hands off this offer.

Where and how does my ETF invest?

Another important point is analysing how the ETF works. This includes, for example, the question of which regions are invested in and to what extent. If we notice a lumpiness, for example, this can speak against the purchase.

Our MSCI World example, for example, is particularly strongly represented in the USA. However, if I am already fully invested here, this ETF may not do so well in my portfolio. This is because focussing too heavily on a single region entails considerable risks in the event of the next crash.

The same concept also applies to sectors, where too much concentration in financials, IT, oil and gas … is a negative. Here, too, you should make sure that the ETF fits into your current portfolio.

Once you have checked this information in the factsheet/the detailed information on the ETF and have not found any reasons not to buy it, you can continue with the other points.

Costs and tracking difference

At first glance, the costs of an ETF appear to be quite simple: The TER (Total Expense Ratio) fee in % has to be paid per year if you want to invest. However, it is significantly influenced by the tracking difference!

Using the ISIN number of our ETF candidate, we can find out this value on trackingdifference.com. If it is in negative territory, our ETF has tracked its underlying index better and was therefore more favourable than the TER would suggest.

However, if the tracking difference is positive, we effectively pay even more than the fees suggest. It is therefore advisable to check the tracking difference before buying to ensure that you do not incur excessive costs in your portfolio.

Practical example 2: Sustainable world ETF

Of course, a global ETF is not the only category that investors are interested in. A current trend theme such as sustainable investing is also very popular.

To find a sustainable world ETF that fits our investment strategy, we proceed in a similar way. As an alternative to finding a world ETF via a search term, we can also select ‘World’ from the suggested regions.

We now filter our results through the ‘Investment strategy’ tab and naturally select ‘sustainable’ here. What remains are the world ETFs that fulfil the requirements for sustainable management. Now, as usual, we can filter and sort according to the most favourable costs, best performance or whatever else we feel like.

Sustainable ETFs are in some ways a special case: they are still very young almost across the board, as the topic has only recently really gained momentum. As a result, many of them do not yet have any historical data to show.

However, an ETF without a ‘history’ always harbours a certain risk: it is quite possible that it will be discontinued due to a lack of profitability. Many investors therefore consider an age of 3 or even 5 years to be the minimum for a safe ETF.

Our conclusion: The important criteria at a glance

Finding the right ETF can be difficult. However, our checklist will help you avoid many pitfalls:

Main criteria

  • Minimum size of 100 million euros. Smaller ETFs have a realistic chance of being closed, as they are often not profitable for the operator
  • Distribution. Here you can decide what to do with any dividends – pay them out to you or reinvest them immediately (reinvestment)
  • Replication method Full (every share, no matter how small, is bought), sampling (most shares are bought, but not the smallest) or swap-based (with a swap partner who assumes the guarantee – risk!)

Secondary criteria

  • Low costs (TER) in % so that your profits are not eaten up by the fees.
  • Low tracking difference. A negative value indicates that the ETF actually costs less than the TER fees would suggest.
  • Invest in the right region so that your portfolio is not lumped together in a single country/economic area
  • Invest in the right sectors – same idea as for regions: no lumping together of individual industries

Load capacity

  • All information on an ETF has been checked against a binding factsheet; the ISIN number matches and it is definitely the right ETF.

If these criteria match your personal strategy and everything is in order, you have probably found the right ETF for you. If you have a bad feeling about one of the aspects, you should look for a different product.

Once you have chosen the right ETF for you, the question of the right broker naturally arises. No investor wants to pay unnecessarily high fees for transactions or be restricted in their choice!

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About our author

Aleks Bleck is the face of Northern Finance and was already a shareholder, lender and ETF investor at the age of 18. His focus is on P2P loans and passive ETFs. Aleks founded Northern Finance in 2017 while studying business administration in Lu00fcneburg.

He built up the YouTube channel alongside his main job in investment and corporate banking before finally focusing full-time on Northern Finance.

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