Asked by Anonymous

How do you determine which ETF to buy? What are some features of a desirable ETF?

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  • Luke Ho
    Luke Ho, Money Maverick at Money Maverick
    Level 6. Master
    Answered on 06 Dec 2018

    Some common features are

    1) Low cost - which is the primary reason people buy ETFs instead of funds. There can be a variety of hidden fees for ETFs as well, since they're designed for trading - so try not to be tempted into giving up your postion on a regular basis. Watch out for other fees such as platform fees, management fees and taxes.

    2) Liquidity - Desirable feature for most, impractical for most as well. Investments should be long term. But it is certainly desirable. Outside of crashes or corrections, ETFs are often more liquid than Unit Trusts except during periods where no one is willing to purchase them during exceptionally poor times.

    3) Diversification - because otherwise you can just buy some stocks. One of the reasons why I think the STI ETF is basically a hunk of junk about 60% financials

    Prices are much lower this year than last year though, so you might get some value in the short term. Make sure your ETF spans across all the sectors well.

    4) Yield - historical or otherwise. It's why people would opt to buy outside of Singapore as well, since overseas yields, both US and Emerging - have much better historical yields than Singapore.

    For efficient markets like the US - which is basically a reference to the fact that the majority of information about them is out there which makes it near impossible for a fund manager to outperform that market consistently - ETFs make more sense. Check your market and instrument before choosing an ETF as well.

    You can always read my blog to learn more about investing in general.

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