ETF Reference surveyed 57 ETF investing experts, including Toroso Investments’s Michael Venuto, in search of the best tips for exchange-traded fund investors. Following are Michael’s tips:
16. When using ETFs, embrace the transparency of the structure. Most investors assume that the name of an ETF accurately describes the holdings. Due diligence is still required because many firms use different definitions, but all are required to disclose that information. For example VB Vanguard Small Cap is about 75% mid caps. This information is readily available but investors have to look for it.
19. Most investors put an overemphasis on expense ratio while ignoring bid/ask spread, securities lending, commission free availability and internal trading cost. The latter four components can have a much bigger effect on the cost of an ETF than a 10 basis point difference in the stated expense ratio.
65. Bond ETFs will behave like bonds. Bonds have a set coupon and a set maturity. Bond ETFs follow an index, where the coupon can change and maturity is perpetual, but they are still subject to duration. Bond ETFs that lose principal due to an interest rate move may never regain that value. Bond ETFs are very useful but they are not a replacement for purchasing individual Bonds.