It is true that ETFs are generally more transparent than classic funds. But that is less a credit to the management. ETFs have fewer hooks and loopholes than actively managed funds. There is simply less chance of intransparency. But where it is possible, there is still a lot of wheeling and dealing. One example: the famous total expense ratio, also known as TER (Total Expense Ratio). Unfortunately, this expense ratio is not as total and all-encompassing as its name suggests. Items like swap costs and securities lending transaction costs are often not part of this ratio.
This is annoying, but as an investor you have to bite the bullet, because there is nothing better on the market at the moment.
It is only important that investors are aware of these shortcomings, name them and hopefully contribute to their elimination. One example is Indexuniverse for a transparent so check their Social Media:
Which ETF will make me rich?
You can’t go wrong with an ETF that invests broadly in the market and tracks a well-constructed index. If this ETF also has a
has a low expense ratio (TER)
has a low tracking error,
has a low tracking difference,
does not synthetically track the index (no swapper),
you’re in luck. Small note: The swapper thing is my personal opinion. I am willing to accept a higher tracking error because I value that my fund really holds the securities that make up the index. But there are also people who consider the swap risk justifiable and instead try to minimise the tracking error. Reason: a high tracking error reduces the return, this foregone return is too high for the counterparty risk. I can absolutely understand that, but it is not my way.
Which indices are market broad?
The following indices come into question.
World: MSCI World, MSCI ACWI, MSCI ACWI IMI
Europe: STOXX600, MSCI Europe
North America: MSCI North America, MSCI USA, S&P 500
Asia: MSCI Pacific
Emerging Markets: MSCI Emerging Markets
Frontier Markets: MSCI Frontier Markets
Small Caps: MSCI World Small Caps, MSCI Emerging Markets SmallCap, MSCI Europe Small Cap, MSCI USA SC, S&P SmallCap 600, Russel 2000
Important to know: Any ETF can only be as good as its index. A poorly constructed index is performance poison. More on this topic can be found in the article „Index is not just an index“.
The article „What are funds?“ deals with the topic of funds in general.
in practice ETFs are index funds. That is why the terms ETF and index fund are often used synonymously.
However, index funds are much older than ETFs. The first publicly available index fund was launched in the mid-1970s by John Bogle to track the S&P 500.
The first ETF was the SPDR on the S&P 500, which was in January 1993.
Index fund = The fund tracks an index. ETF = exchange-traded fund. Shares in traditional funds are bought from the fund company and returned to the company when they are sold. This takes a few days. The price of a classic fund is determined once a day. All transactions of that day are then settled at this price.
ETFs are traded continuously on the stock exchange. You can buy and sell immediately. However, permanent trading also means permanent price fluctuations and different prices depending on the stock exchange.
At first glance, the two things have nothing to do with each other. But since the concepts of index and ETF fit together so well, they have become Siamese twins.