- How to buy your first index trackers
- Choosing an investment platform: A nuts and bolts guide
- Picking an index tracker out of the investing swamp
- How to choose the best index trackers #1: Basics
- How to choose the best index trackers #2: Costs
- How to choose the best index trackers #3: Overlooked stuff
- How to choose the best index trackers #4: ETF-only features
- How to find index funds
- How to find Exchange Traded Funds
- How to buy and sell ETFs
- How to buy and sell index tracker funds
Searching for suitable index trackers often feels like speed dating a roomful of double agents – it’s not easy to find a good match. But having outlined my strategy for finding the index funds of your dreams, let’s tackle how to find exchange traded funds (ETFs).
Experience has taught me that no single fund comparison site should be wholly relied upon:
- Fat fingered data entry means inaccurate information is rife on public sites.
- Sites often lag behind recent developments.
- Many sites skip out entire chunks of the market.
I don’t trust brokers to give me a reliable picture, either, so I always hunt for ETFs using a minimum of two independent fund-finding sites. This enables me to cross-reference key facts and sweep as much of the market as possible in a three-stage process.
Stage 1: Morningstar ETF Quickrank
Morningstar’s ETF Quickrank takes about 30 seconds to use. There are two things to watch out for when selecting your options:
London Stock Exchange – Leave this menu alone unless you know what you’re doing. Trading on foreign exchanges can lead into murky tax and trading fee waters, so stick to the London Stock Exchange.
Morningstar Category – Choose the asset class you’re interested in, such as inflation-linked bonds.
Hit search: Morningstar coughs up its findings and you can rank ‘em by Ongoing Charge Figures (OCF).
Unfortunately Morningstar does have blind spots, such as missing categories for emerging markets small-caps, momentum, and low volatility.
It’s always worth getting a second opinion.
Stage 2: JustETF
JustETF is an excellent ETF hunting-ground. It blends accuracy, ease-of-use, and respectable design with relevant information.
I dislike using the search box because it’s a key-word guessing game. Instead, it’s quicker to find the right ETFs using the advanced search function.
Using the left-hand column you can quickly focus your choice by choosing categories such as:
- Asset class
- Geographical region
- Strategy (e.g. dividend, equal weight, value)
Searching by categories is obviously more old-fashioned than tugging on the tabs of a fund screener but it’s also much more effective. Like a 10-pound lump hammer.
Click on the UK in the country category and you’ll see a list of ETFs divided by index, such as FTSE 100, FTSE All-Share, FTSE 250.
Click on the index name and you can drill down into just the FTSE 250 trackers, for example.
Check other categories in the left-hand column to narrow the field still further:
- Use of profit – How the ETF treats dividends, either accumulating or distributing on your behalf.
- Replication – Does the ETF track its index using a physical or synthetic process?
- Fund domicile – Choose Ireland or Luxembourg to avoid withholding tax problems.
There’s also a nice drop down menu that enables you to check if the ETF is into securities lending.
I do use the search box to find ETFs that don’t fit with the available categories.
For example, JustETF doesn’t currently include quality as an equity strategy. But if you type quality into the search box then the relevant ETFs turn up.
It’s possible that you could find all the ETFs you need purely using JustETF, but I’m as fond of a belt and braces approach as any menswear assistant, so I always use Morningstar as well.
Stage 3: The ETF provider
Appearances can be deceptive in the investment world and facts can change. So once I have my ETF shortlist, I round off my search by visiting the product provider’s website to review the latest literature for the ETFs I’m interested in.
And that’s about it!
Finding the right exchange traded fund doesn’t take long once you’ve nailed your system and got the hang of tools like JustETF.
Please do share any tips or sites that work for you below.
Take it steady,
The Accumulator
Thanks for this! i shall pass on to several friends who also need to know.
1. Thanks for another useful article.
2. However, I don’t understand your first sentence – its reference to people with the mental illness schizophrenia. Please explain.
The idea of speed-dating split personalities was a flippant analogy for searching for the right fund. In other words, it’s hard to find the one you’re looking for under the circumstances.
1. Thanks for the explanation. I thought that might have been the intended meaning. But you do know that schizophrenia doesn’t have anything to do with a ‘split personality’ (whatever that is), don’t you? I was particularly concerned that you might be stigmatising schizophrenia and/or people with the condition.
2. Back to ETFs. The number of ETFs HSBC has made available on LSE for individual investors in the UK has crept up this year. Why is HSBC being so slow?
It was a throwaway line. I hope it can’t be taken seriously given the context. I certainly don’t mean to cause any offence.
I don’t have any insight into HSBC’s ETF policy. There was talk of Vanguard launching ETFs in the UK this year, but clearly that’s failed to materialise. Still, given that many new ETFs appeal to the more exotic end of the market, I’d rather someone out there took their time and delivered a product that would be more useful to investors interested in broader market segments.
what is the rate of return on these ETF’s? Bit of a wide ranging question I suppose?
Also could you tell me how I go about buying high yield dividend income producing shares?
Thanks
@Claire – Those are big questions, and I suggest you’ll have to stick around the blog / read back through the archives as even the voluble Accumulator, who rivals me for verboseness, isn’t going to be able to address those points in a comment. 😉
Note I have written about High Yield Share porfolios before. I’ve also written about – and think a better option for most people is – income investment trusts, although be aware they’re trading at a bit of a premium to assets at the moment.
Thanks Monevator, at the moment I am interested in income rather than capital appreciation (but I cant afford to lose capital), could I get better income with HYS’s and IIT’s rather than my fixed rate bonds which are returning about 4 – 4.5%?
1. Again, thanks for the response. Ah, yes, I remember those apparently imminent ETFs from Vanguard (for the UK).
2. I fully agree with you about some of the “more exotic” new launches – not at all helpful. Have you seen the latest corker from db x-trackers? Just in time for Christmas (yes, really): “the world’s first ETF for Christians who wish to invest in line with their faith”. I suppose if God moves in mysterious ways, we may as well use an ETF to track those movements…
@Claire – These are big questions that are beyond the scope of replies in comments… I’d suggest you need to read a lot and potentially seek advice. But I will say if you can’t afford to lose capital, you certainly shouldn’t buy shares and investment trusts – they can halve in a year, they have before and they will again. If you can’t ride that out, you shouldn’t be buying them.
Chasing higher yields without fully understanding all the risks often leads people astray with all sorts of investments.
I’m not qualified to give personal advice; you may want to find a good fee-based (important!) financial adviser in your area and look to build out a rounded, diversified portfolio built around your needs and risk tolerance.
@Alex – Wow, that’s terrible – it messes up the purity of ETF investing, and it surely won’t be able to track a basket of stocks that would really satisfy examination by all people of the Christian faith, anyway.
Still, here’s a link for those who want to know a bit more.
Just some input about Vanguard….
I listened to a couple of Motley Fool podcasts where David Kuo interviewed the Vanguard UK CEO. Both were very interesting and when I looked into investing, Vanguard UK’s website states that for an private investor to deal direct with them the minimum is £100k per fund! I called them up on the phone and this was indeed confirmed.
However you can invest lesser sums via one of three distribution channels:-
Alliance Trust http://www.alliancetrustsavings.co.uk
Investor Profile http://www.investorprofile.co.uk, and
Sippdeal
I currently use Hargreaves Lansdown’s platform for all my share and fund purchases so if I want to buy a Vanguard ETF I will need to open another account with one of the above.
I’m still researching what ETFs to buy at the moment.
Rgds,
Bill
Hi Bill,
Thanks for your comments. I’ve previously written about Vanguard here: http://monevator.com/2010/10/12/cheap-vanguard-index-funds/
Vanguard currently offer index funds in the UK market. If you buy a Vanguard ETF then you’ll be buying one listed in the US, which can have tax consequences. There will also be international dealing charges and potentially increased currency risk exposure to consider.
Has ETF Explorer disappeared?
Hi Bob, yes it has. I need to update this article. These days I use:
https://www.justetf.com/uk/index.html
https://www.whichetf.co.uk/etp-table/
well, I didn’t know about ‘justETF’ site… had a look…. its good.
thanks
@TA
What are you on about re the Vanguard ETFs? There are a number of GBP based ones on the London Stock Exchange. e.g. FTSE100 (VUKE), FTSE250 (VMID), a global high yield one (VHYL) etc. They are cheap and track superbly.
There is some weirdness about the dividends being paid in dollars and getting converted though IIRC.
Oh, having looked at the dates, I feel a little silly. 😀
Still, they are good ones to be aware of!
No need to search for ETFs, only two required, VWRL & VGOV. Decide on your risk based allocation, purchase, do something else.
I have just one ETF investments at present, everything else is in stocks and investment trusts. The reason is an almost total lack of transparency with ETFs. Buy a good old investment trust and you can read the annual report. There is no equivalent with ETFs.
From what I read in ETF documents, it often seems the ETF can engage in “swaps” that are internal to the bank, then when the ETF fails to track the index or commodity concerned, there is no visibility of why. With this kind of opaque investment, it is clear who will lose out if there is a problem.
Secondly, in some cases I saw an ETF tracking an index. The stocks in that index might pay out a 3.5% dividend, yet I sometimes cannot track what happened to the dividends attributed to the stock. The 3.5% is neither paid to investors nor showing up by the ETF outperforming the index. Of course, this isn’t always the case & perhaps it was poor documentation in the cases I looked at.
ETF providers do publish annual reports. Moreover, many providers will publish daily lists of every single security in the ETF, information on distributions, upon geographic diversity, performance and so on.
The swaps you mention are a mechanism of synthetic ETFs that are offered by global banks. You can avoid these easily by using physical ETFs from the likes of Vanguard, iShares and State Street.
Stick to broad-based, vanilla ETFs and you’re dealing with some of the most transparent financial products you can invest in. Take a look at:
http://www.ishares.com/uk/individual/en/products/251795/ishares-ftse-100-ucits-etf-inc-fund
Hi All, hopefully i am posting in approximately the right place – I have a specific question that’s been on my mind for a while but could not find an exact fit of where to post it.
Essentially my question is ‘Does the currency of a broad global equity index matter’. Specifically, if you look at VWRL, which is a Vanguard ETF denominated in GBP and is basically global equities in a can (this is my main equities fund), do I need to worry about the fact that it is denominated in GBP in an environment where thanks to Boris and the Brexit crowd, the pound is tanking?
I suspect I should not worry, that while the value of UK stocks within the ETF (around 7%) will be affected to some degree, all the other countries’ stocks would be mostly unaffected by GBP’s slide. In fact, if I follow this train of thought, if the pound drops in value vis other currencies, the price of VWRL in GBP should actually rise as the price for buying those stocks with GBP has risen.
With a dataset of 1 day, this is borne out. Yesterday our blonde friend Boris declared for the Brexit camp on the heels of Gove and this has driven Sterling down to the lowest point since 2009. On the other hand, VWRL rose nearly 3%. While markets were generally up yesterday, VWRL was up more than even the S&P 500 (went up about 1.45%), to which its most closely correlated and it generally won’t overshoot by much. I’d be very grateful if anyone could validate my thinking on this, as well as any further info on how quickly / closely this ‘auto-adjustment’ mechanism might work.
Thanks in advance for any comments, Falco7
@Falco7 — Have a look at this article:
http://monevator.com/currency-risk-fund-denomination/
@ Falco – you are right that as the £ weakens against global currrencies then your investments based in those currencies will rise. So global equities are a good hedge against the £ which all UK-based citizens are heavily exposed to
@Accumulator & @Investor – thanks for your replies! I should have known there would be an article in the archive somewhere that pretty much addressed my query directly. This confirmation makes me feel a lot better in the face of the horrible slide in the pound. To give the background, I’m retiring early and moving countries soon and for various reasons will need to liquidate my VWRL holdings and buy an equivalent in Oz, denominated in AUD. The rapid pound depreciation was worrying there for a while…
Gents, sorry to be a pain but can I request you change my name on the prior comment to my ‘anonymous’ name Falco7. Either that or please delete the comment entirely (along with this one of course). I input my real name by mistake and need to keep things quiet about my impending retirement – have not actually quit yet. Sorry for the hassle…
Great Post, in this post of your it is clearly mentioned about the tips which we need to keep in mind while selecting ETF. As a beginner, it is very difficult to understand the process of selecting. after reading this post most of my doubt got clear and surely I will be using the tips mention in this post in my investing career.