Researching an ETF can start simply enough. You find one that looks interesting, read the fund page and look at what it owns.
Then the research expands; you read a market article, watch an expert explain the sector and compare the ETF with a few alternatives. Before long, you’re looking at performance charts, forecasts and opinions that don’t always align.
More information can be helpful, but it can also make the decision harder to assess. The key is to provide each source with a clear purpose.
Start with the facts
The fund page and other documents like the Product Disclosure Statement (PDS) are the best place to understand what an ETF does.
Look at its investment objective, holdings, strategy, fees and key risks. You can find out what the fund owns, how it selects those investments and what type of exposure it’s designed to provide.
This is particularly important when an ETF focuses on a specific sector, theme or group of companies. An ETF may provide exposure to an area that appears broad, but its performance could still be heavily influenced by a small number of holdings.
This information can also help you understand practical details, such as whether the ETF is currency hedged, how distributions work and how often the portfolio changes.
Starting with the facts gives you a clearer basis for judging the commentary and analysis that follows.
Use articles and commentary for context
Market articles, expert views and investment updates can help explain what’s happening around an ETF.
They may explore the forces driving a sector, explain why an asset class has performed strongly or examine the risks that could affect it in the future. This context can help you understand why an ETF has attracted attention and what questions are worth exploring further.
For example, if you’re researching the HACK Global Cybersecurity ETF, the fund page tells you which companies it holds as well as the sector and country allocations. Market commentary might explain why cybersecurity is attracting attention and lastly forecasts express a view about what could happen next. Ultimately, they’re answering different questions.
Compare like with like
Research can become confusing when you compare information that isn’t directly comparable.
An ETF’s one-year return may look very different from its five-year return. One fund may report performance before fees while another shows returns after fees. A currency-hedged ETF and an unhedged ETF may both provide global exposure, but their returns can be affected by movements in the Australian dollar in different ways.
Before drawing conclusions, check that you’re comparing the same time period, the same type of exposure and the same measure of performance.
It’s also worth looking beyond returns. Compare the investment objective, portfolio holdings, fees, concentration and risk characteristics. A fund that has performed better recently may also have a narrower focus or greater exposure to a particular company, sector or market.
The aim isn’t to find the ETF with the most impressive number. It’s to understand what may be driving the difference.
Look for information that adds something new
As you review multiple sources, consider what each one adds to your understanding.
One source may explain the opportunity, while another explores the risks or questions the assumptions behind the growth story. Together, they can give you a more complete view of the investment.
Once the same points start appearing repeatedly, further reading may not tell you much more. It can simply reinforce a view you’ve already formed.
Focus on the information that adds context, raises a new question or helps you understand something you haven’t considered.
Build a research process that works for you
There isn’t a single correct amount of research for every ETF or every person.
A useful starting point is the ETF fund page, then use market commentary to understand the broader opportunity and risks before comparing similar ETFs based on their holdings, strategy, fees and performance over consistent time periods.
The aim isn’t to know everything. It’s to understand what you’re buying, the risks involved and how it fits with your investment plan.
