Page 38 - Investment Advisor April/May 2022

ETF ADVISOR

By Roger Wohlner

Top Index ETFs from 4 Big Asset Managers

It’s important to evaluate these products based on performance, as well as
on the company managing the fund.

ndex funds, especially index ETFs,
are a low-cost, tax-efficient way
Ito invest a client’s money. Index
ETFs can be useful in implementing the
appropriate asset allocation strategy for
your clients. Here are some thoughts on
picking top index ETFs for 2022.
While there is no one right metric
to choose the best ETFs, these crite-
ria can help narrow your search. The
Morningstar medalist ratings can be a
quick, useful tool. The medalist rankings
take five factors into account:
• Process: How are the ETF’s assets
put to work?
• Performance: What are its risk-
adjusted returns over time?
• People: Who manages the fund? VANGUARD ETFs Mid-Cap Blend: The Vanguard Mid-Cap
• Parent: What company is offering Vanguard offers an extensive line of ETFs. ETF (ticker VO) earns a Gold Morningstar
the ETF? Of note here is that their ETFs are consid- rating. Other metrics include:
• Price: Does the fund offer a solid ered another share class of the corre- • Expense ratio: 0.04% (2nd
value proposition? sponding mutual fund where applicable. percentile).
Expenses are another key metric to Total Stock Market: The Vanguard • Underlying index: CRSP U.S. Mid
consider, especially with an index ETF. Total Stock ETF (ticker VTI) earns a Gold Cap Index.
In this case, less is more. Morningstar rating. Other metrics include: • AUM: $55 billion (1st percentile).
• Expense ratio: 0.03% (3rd percentile). • Three-year trailing return: 12th
WHICH INDEX DOES THE ETF TRACK? • Underlying index: CRSP U.S. Total percentile.
It’s important that the ETF uses an Market Index. • Trailing return: 10th percentile.
index that is representative of its asset • AUM: $285 billion (2nd percentile). Small-Cap Blend: The Vanguard Small
class and investment objective. This is • Three-year trailing return: 39th Cap ETF (ticker VB) earns a Silver
important for asset allocation purposes percentile. Morningstar rating. Analysts cite style
and other reasons. The fund’s level of • Five-year trailing return: 36th drift issues that exceed the average for
assets under management is also a con- percentile. other funds in the category as the rea-
sideration. Not only do the best index Large-Cap Blend: The Vanguard S&P son for a slightly lower ranking. Other
ETFs tend to attract assets, but a larger 500 ETF (ticker VOO) earns a Gold metrics include:
asset base also can help to reduce the Morningstar rating. Other metrics include: • Expense ratio: 0.05% (4th percentile).
size of any bid/ask spread. • Expense ratio: 0.03% (3rd percentile). • Underlying index: CRSP Small Cap
Let’s look at some of the top • Underlying index: S&P 500. Index.
index ETFs offered by the biggest • AUM: $281 billion (3rd percentile). • AUM: $48 billion (2nd percentile).
ETF providers. Return data is per • Three-year trailing return: 20th • Three-year trailing return: 37th
Morningstar as of Jan. 31. The Total percentile. percentile.
Stock Market ETFs are part of the large- • Five-year trailing return: 17th • Five-year trailing return: 16th Adobe Stock
cap blend category. percentile. percentile.

36 INVESTMENT ADVISOR APRIL/MAY 2022 | ThinkAdvisor.com