Updated: Oct 22, 2021
In this 3rd part of the wider Getting Started with ETFs series we dive into the data and look at what types there are. You can dive into this series too, either back to previous articles or ahead to the next topics. The other parts in this series are below:
Part 3 - What data we look at when analysing ETFs
What data we look at when analysing ETFs
Now that you’ve done some homework on your investing personality and the type of ETFs you’d like to buy the next step is to look up a few on Google and choose them just by their name right?Wrong (of course). Well, you can do that and whilst there’s nothing wrong with YOLO’ing away your life savings if your bets pay off, you don’t want to be the one to have regrets and say you should have done your homework or have other tell you that.
With ETFs, it's all about looking under the hood and there's some great ways you can do that. You can go to the fund websites and do some research and analysis there. You can look at other resources (such as those found in the resources menu on our website). We did this when we began investing and whilst the data is out there, it can be time consuming.
That's why we created ETFtracker in the first place. It was an app to help us become efficient at analysing ETFs to help ourselves and now we get to provide this to everyone to see if it helps them. At ETFtracker we’ve used the data we collect to help people look under the hood. There’s a lot of data out there so this collection of interactive apps has made it easier for us to do analysis and hopefully it can help you too.
The data that we provide at ETFtracker to enable the analysis of ETFs can be categoriesed into 2 broad groups:
ETF Market Statistics
We take a look at these in more detail below. First up is the monthly metrics we collect from the ASX and Chi-X as well as other data we've sourced online. After that we can use our holdings tools to look at the underlying holdings of those ETFs as well as ensure that if you’ve chosen a group of ETFs for your portfolio, you don’t have too much crossover across them.
ETF market statistics
The ETFtracker app we have built looks at various statisics that we group into 6 areas that paint a picture of a single or group of ETFs. We have these as 6 different areas users can navigate to alongside some other options. In this area, users can explore these metrics across all ETFs, Categories and Thematics in the app.
Figure 1 - Highlighting main menu popouts in ETFtracker app
Also, we combine that into something to give users a quick view of how individual ETFs look against these measures via the ETF Snapshots menu option.
Figure 2 - Example of ETF Snapshot page looking at HACK
Below we take a look at what these 6 metric groups are all about:
1. Performance - this is all about the price and how well (or poorly) and ETF has performed. The data from the ASX/Chi-X is based on Total Price returns from Bloomberg and takes into account dividends being reinvested. This is historical price data and on a monthly basis but we do link to the ETFs performance per Google Finance (which you can see if you go to the ETF Snapshot page for that ETF).
2. Size - this looks at both FUM (funds under management) as well as Net Inflows and is a sign of how popular an ETF is. Even if an ETF has low FUM compared to others, if its been showing strong signs of increasing growth then that can still be positive. Additionally, some ETFs experience strong level of inflows early on but then stagnate. This does not mean to give up on them but definitely there is a need in that case to look at other factors for that ETF and see if slowing inflows are offset by other positive factors.
3. Transactions - this looks at the number of trades, transaction volumes and transaction values for an ETF. This indicates if investors are buying and selling this ETF. If an ETF has limited transaction activity it can be because there are limited buyers and sellers for that ETF or many investors are buying and holding it. There might be other factors that make this ETF a positive one to have but transaction trends can be helpful to understand.
4. Tradability - we look at 2 metrics here, monthly liquidity and % spread. If a stock has low liquidity it is harder to trade as there's not much volume around and if it's spread is high that means it is harder for buyers and sellers to meet at agreeable prices. The opposite (high liquidity and low spreads) are more ideal for investors but again, this area is one factor to consider amongst others.
5. Quality – quality is measured by looking at historical dividend yield / distributions of the ETF. The calculation here is based on a rolling 12-month level of distributions per the current share price so a stronger yield % here indicates the ETF has been improving the distributions it provides to investors. Some investors want to have ETFs with strong yield whereas others don’t care as much as performance or ETF infows are more important for them.
6. Cost - this is analysed by looking at the Management Expense Ratio (MER) for the funds. Some ETFs such as active ones are inherently more expensive than pure index tracking ETFs but that does not mean you should always chase the lowest cost ETFs.
An example of how you can look at the stats together is that you might be seeing an ETF with increasing transactions can indicate popularity increasing for that fund or stabilising depending on the data. In addition, you might see that this ETF has increasing size but low number of trades which could mean it’s institutional money that’s trading it rather than retail investors and you’d prefer to see something being bought up by all investor types.
In general it is good to see ETFs with positive or improving performance, growing size of inflows/FUM, increasing or steady level of transactions, lowering spread % or and strong liquidity and depending on the type of ETF you’re after, reasonable distributions and costs.
The next part we provide is looking under the hood of the ETFs even further by analysing their holdings. Having access to holdings can help users choose which ETFs they think will co-exist better in their portfolio.
Additionally, looking at ETF holdings is important because a user might not realise they have 2 ETFs that, for example, have very similar holdings and thus are potentially paying twice for the same kind of performance. Having access to holdings data allows users to check how similar their holdings are across the ETFs they own and can also be used to search for ETFs that give exposure to a particular company or theme.
ETFtracker has pulled together for over 170 of these ETFs with the majority being equity related ETFs. There are some caveats to the holdings data which are detailed in the ETF Holdings Comparison Guide.
Right now, the holdings analysis tools sit in separate apps and on a separate page to the main ETFtracker app but eventually they will be merged into a single app.
There are other areas to consider when looking at ETFs that ETFtracker does not provide. The ASX, Chi-X and issuer data we collect has some great insights but there are more out there. This includes:
Tracking error (for passive ETFs) - this refers to how well does this ETF track its benchmark and is usually available on the funds website.
Volatility - the up and down price movements of an ETF might have an effect if you're a short term holder but given most ETF investors have a longer term view, short-term volatility might not be a concern. Still, it's not true that investing in ETFs are so safe that you can't lose money. Any money at risk is precisely that, at risk and whilst diversification can mitigate losses and diversification is higher in ETFs, it does not mean that ETFs come without some volatility.
Additionally, ETFtracker is still undergoing further improvements such as providing the ability to easily benchmark ETFs against each other to enable easier comparisons between ETFs within their own sectors or other comparison groups.
Other considerations include the invesment philosophy of the ETF's portfolio managers, what benchmark they track and more about the company issuing them. You can see this information on the ETF Snapshot page as we provide a link back to each funds page (see below)
As much as we can quickly crunch the numbers on this sort of data, there are some things we don't have as datapoints that we collect. For example, our pricing is only reported monthly so you can look at this info for a long-term perspective but you should look to something like Google Finance for more up to date pricing and news. Here's a couple of links to resources we mentioned above and more.
ASX Monthly Reports: https://www2.asx.com.au/issuers/investment-products/asx-funds-statistics
Chi-X Monthly Reports: https://www.chi-x.com.au/funds/monthly-reports
Google Finance (example here from ETFtracker site): https://www.etftracker.com.au/google-finance
Yahoo Finance: https://au.finance.yahoo.com/quote/VDHG.AX?p=VDHG.AX
Next up it's Examples of ETF analysis.