Some Factors To Consider When Shortlisting US ETFs

finance

An investment instrument that new investors may feel gray about, for their sheer ambiguity, is US ETFs. It’s safe to say that ETFs lie in the line distinguishing mutual funds from stocks, for they combine aspects of both asset classes. ETFs are pooled investment instruments that hold securities like a mutual fund. But, like stocks, they offer intraday liquidity.

Approaching the terrain of US investing with ETFs can be challenging if you’re unsure what factors you should consider when selecting ETFs on a share market app like Appreciate. Below are some guiding points. 

1. Investment objective

Figure out your investment objectives—whether you want capital appreciation, portfolio diversification, or income generation. Your goal can help you narrow down the type of ETF you should consider. For instance, if your goal is to diversify your portfolio and you’ve only been investing in equity, you may want to explore bond ETFs through a stock trading app online.

2. Sector or industry focus

Decide whether you’d reap better by following the trends of the overall US stock market or invest in US market shares in a specific sector. The former would be covered in broad-based ETFs that track indices like the NYSE Composite and thus have lower risk. Conversely, the latter would incur higher risk but may offer astronomical returns if your decisions are right.

  • Ensure to check the tracking error if you chose index ETF. The lower the error, the more accurately the fund would reflect the trend of the index.

3. Investment style

Much like mutual funds, ETFs can be classified into growth, value, or blend styles depending on the underlying securities. It’s best to use a stock trading app or platform that offers this information as tags for easier identification and shortlisting.

  • Growth ETFs focus on companies with higher growth potential.
  • Value ETFs target undervalued stocks.
  • Blend offers a mix.

4. Expense ratio 

Similar to mutual funds, there are expense ratios to be considered when investing in US ETFs. The ideal expense ratio would be subjective. Always assess the potential of the fund rather than simply investing in the one that has the lowest expense ratio. 

5. Liquidity and trading volume 

Assess the liquidity and trading volumes of the ETFs you shortlist. For instance, if you plan to be an active day trader, you may want to look for funds with a tighter bid-ask spread and high volume and liquidity. This will enable you to easily hold or leave a position at a good price. 

Finding a stock trading app, like Appreciate, that lets you invest in the US markets can feel like stumbling on a treasure trove. Nonetheless, the true value of this treasure is only actualized when you’re sure that you’ve made the right investment decisions. Especially when it comes to selecting US ETFs, the best way to go about it is by ensuring that you possess all information and data to base your decisions on logic. Beyond the factors listed above, you may want to scout for additional information on the fund you’re interested in, such as tax efficiency, reputation of the provider, etc. Remember that no one factor shall override the rest.