How to choose an exchange-traded fund?

How to choose an ETF?

With over 3 000 ETFs available in Europe, choosing the right one can feel overwhelming.

To help you navigate the market, here are some criteria to consider when selecting an ETF

1. Define your objectives

You need to define your investment objectives by asking yourself key questions:

• On which asset class do you want to focus?
  • Equities
• • Bonds
• • Real Estate
• Which regions or markets are you targeting?
• Are you aiming for broad exposure
• or specific themes such as biodiversity or the blue economy?

2. Active or passive ETF?

This choice depends on your investment objectives. Passive ETFs only aim to replicate an index’s performance, active ETFs are designed to generate alpha, meaning to outperform a specific index by drawing upon the expertise of portfolio managers. Active ETFs come with higher fees but can potentially offer higher returns.  

3.Performance

For passive ETFs, evaluate how closely the ETF’s performance matches its benchmark index, the difference is called the tracking error. For active ETFs, consider whether it has consistently outperformed its benchmark over meaningful periods.  

4. Expense ratio

This is essentially the cost of investing in a given ETF. While low fees are attractive, they do not always mean better performance and should not be your only deciding factor.

5. Issuer

The company that offers and manages the ETF is also important. You may prefer to invest with an established ETF provider with a strong reputation and long investing track record.

For more insights on ETFs, visit your local website BNP Paribas Asset Management.

Investments are subject to market fluctuations and other risks inherent to investing in securities. The value of investments and the income they generate rise and fall and it is possible that investors may not recover their initial investment.