How to select the best ETFs for your needs

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Investors in Canada have access to over 3,000 exchange-traded funds or ETFs. These ETFs fall under different categories such as:

Sector Tracking ETFs: These ETFs track the 11 economic sectors that represent key areas of the economy such as Energy, Health Care, Information Technology, Real Estate, Industrials, Utilities, Materials and more.

Index ETFs: They track or mirror market indices such as the S&P 500.

International ETFs: These ETFs provide exposure to international stocks. Some track stocks issued by companies located in emerging markets while others track all markets but exclude the United States.

Developed Market ETFs: They provide broad exposure to developed markets such as Germany and Australia.

Country Specific ETFs: These ETFs allow you to focus on the market of a single country.

Thematic ETFs: These ETFs are structured around a central theme or idea. For example, some Thematic ETFs choose to only invest in eco-friendly companies while others try to capitalize on financial trends.

Commodity and Currency ETFs: They track commodities such as precious metals or global currencies such as the Japanese Yen.

Complex ETFs: They go beyond simply mirroring an index or basket of securities. Their complexity makes them ideally suited for seasoned investors who understand the risks involved.

This wide range of ETF types can make choosing the best ETF seem challenging but these categories can actually help you zero in on the right ETFs for you. By comparing the cost, structure, and performance, you may be able to identify the ETFs that best match your investing goals.

Identifying the best ETFs for you

The best ETFs for you may change depending on your investment objectives at any point in time. As a TD Direct Investing customer, you get access to WebBroker – our flagship online trading and investing platform that's packed with robust tools and data. WebBroker can help you quickly identify ETFs that have performed well in the past. The Screeners tool can help you cast a wider net by researching categories that include Canadian equities, U.S. and global equities, commodities, currencies, sector-specific ETFs and more. Plus, you can compare how different ETFs stack up based on parameters that are important to you.

Evaluate the best ETFs for you by starting with the 3 steps below:

  1. Clarify your goals:
    ETFs are a good match for many (if not most) portfolios. Are you saving for a down payment? Are you building a nest egg? It is a good idea to first define your investment goals. Also consider your tolerance for risk and investment horizon.

  2. Define your criteria:
    There are two ways to shortlist ETFs – choose from pre-set screens or create your own. The Screeners tool allows you to choose from a variety of predefined featured screens. It's an easy way to find the top performers based on popular investing themes and ETF categories including domestic, global, sector-specific, and more. Alternatively, you can create and save your own custom screens using filters. These can be as simple or as detailed as you like.

  3. Compare ETFs:
    Once you've shortlisted your funds, you have the option to compare up to 5 ETFs. This tool is great for examining and comparing ETFs by fund objectives, performance and asset class holding allocation.

Evaluating ETFs with WebBroker

With WebBroker, you can set parameters or filters that help you pick out the ETFs specific to what you’re looking for. Detailed descriptions of the filters are available in WebBroker. We've listed some of them here to give you an idea of what to expect. Understanding these parameters may help you identify what to pay attention to when selecting the best ETFs.

Fund Overview: Exchange traded funds can be constructed to mimic the performance of stock or bond market indices. Because one can’t invest directly in an index, ETFs may be an option for investing in broad market segments or entire markets. WebBroker gives you the flexibility to customize your parameters. For example, you can select the country in which the majority of a fund’s assets are invested, the fund family (company that created the fund), fund category that includes the broad strategy for the ETF, Management Expense Ratio (MER), index and more.

Portfolio: This lets you filter your list based on parameters like fund inception, total net assets and yearly portfolio turnover. How long a fund has been operational, as well as the size of the fund are also important factors to consider as they give you historical indicators to evaluate performance. The yearly portfolio turnover is especially important. That's because a fund with a high turnover rate will incur more transaction costs. These additional costs can further reduce an investor's net return.

Rating & Risk: Firms such as Bloomberg, MarketWatch, Thomson Reuters, and Morningstar rate and rank ETFs. These ratings can help guide investors towards informed investment decisions. For example, the research firm Morningstar is regarded for its investment research. Their star rating system can be helpful to novice investors. More experienced investors can also filter ETFs based on risk and correlation measures such as Alpha, Beta, Standard Deviation, Sharpe Ratio, R-squared, and Mean.

Price & Trading Volume: Often times, investors research the price movement (change) to understand market trends.

The Screeners tool in WebBroker lets you add additional parameters such as:

  1. Previous close, which is the previous day's trading price

  2. Price change from previous day

  3. The average number of shares that are traded on a daily basis over the last 2 weeks of trading (trading volume)

If you’re more active in your trading, this section can help you determine entry and exit points.

For example, investors often view the 52-week high and 52-week low as an important signal.

  1. Trading above 52-week high value: This could indicate an overvalued security or simply market value appreciation. This may be a good starting point for investors looking to trade based upon price signals.

  2. Trading below 52-week low value: This could indicate an undervalued security, but many prudent investors use this only as a starting point for further analysis.

Performance: While the past performance of an ETF is no guarantee of growth, it can give you an idea of how it might perform under certain market conditions. If these market conditions were to occur again, the ETF may perform in a similar way. You can filter ETFs based on the percentage change in the price over defined periods ranging from 1 week to 1 month to 3 months, YTD, all the way up to 10 years.

Dividend ETFs: Dividend ETFs can provide an investor with income, so it helps to filter based on the distribution yield (the estimated amount of dividend payments you can expect as returns from your stock investment) and distribution frequency (an estimate of how often you can expect to receive dividend payments via the fund).

Holding Allocation: Investors looking to diversify their portfolio can use this section to find suitable ETFs based on a range of helpful filters, such as sector, region, and even if a specific stock is a “Top 10 Holding”. Keeping your investment objectives top of mind as you screen funds can help you create your own list of best ETFs. While there is no trick to choosing the perfect ETFs, WebBroker provides you with tools that can help you screen ETFs on factors that are important to you.

How to buy ETFs

Start investing in ETFs with TD Direct Investing

  1. Open an account
    Select the TD Direct Investing account you want to open online or book an appointment.

  2. Fund your account
    Transfer funds into your account with the online bill payment or funds transfer feature – or set up recurring deposits. Moving investments from another brokerage? Ask about how we could cover the transfer fees up to $1502.

  3. Choose your ETFs and start investing toward your goals
    You can build your portfolio using ETFs, stocks, options, mutual funds, GICs and more.

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