How To Find The Best Style ETFs

Finding the best ETFs is an increasingly difficult task in a world with so many to choose from.

You Cannot Trust ETF Labels

There are at least 49 different Large Cap Value ETFs and at least 236 ETFs across all style. Do investors need that many choices? How different can the ETFs be?

Those 49 Large Cap Value ETFs are very different. With anywhere from 19 to 1403 holdings, many of these Large Cap Value ETFs have drastically different portfolios, creating drastically different investment implications.

The same is true for the ETFs in any other style, as each offers a very different mix of good and bad stocks. Some styles have lots of good stocks and offer quality funds. The opposite is true for some styles, while others lie in between these extremes with a fair mix of good and bad stocks. For example, the Large Cap Value style, per my 2Q Style Rankings Report ranks second out of 12 styles when it comes to providing investors with quality ETFs. Large Cap Blend ranks first. Small Cap Value ranks last. Details on the Best & Worst ETFs in each style are here.

The bottom line is: ETF labels do not tell you the kind of stocks you are getting in any given ETF.

Paralysis By Analysis

I firmly believe ETFs for a given style should not all be that different. I think the large number of Large Cap Value (or any other) style of ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, that can be as many as 1403 stocks, and sometimes even more, for one ETF.

Any investor worth his salt recognizes that analyzing the holdings of an ETF is critical to finding the best ETF.

Figure 1: Best Style ETFs

Screen shot 2014-04-30 at 10.38.59 AM
Sources:   New Constructs, LLC and company filings

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Disclosure: David Trainer owns IBM. David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector, or theme..

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