Our Insights

About personal finance, investments and markets.
August 5, 2016

There is more to choosing ETFs than just fees, part 1

ETFs from different index fund providers on the same index don’t automatically produce the same results. The performance can vary by a wide margin. The difference is sometimes higher than a wealth advisory fee. Even in the low-cost world of ETFs, wealth advisors can add value in many important ways.

The following table from Morningstar shows the tracking difference of the largest global large-cap blend ETFs domiciled in Europe. Tracking difference is the discrepancy between the ETF performance and the underlying index performance (not to be confused with tracking error, which is a related but distinct metric – tracking error is about variability rather than performance).

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The difference between the largest MSCI World ETF by funds under management, the iShares Core MSCI World ETF and the HSBC MSCI World ETF amounts to a staggering 2.38% over three year. Investors get a better result while taking the same risks. Basically the Holy Grail of investing… At a time, when the yield on most government bonds is close to or even below 0%, this is a meaningful source of risk-free return.

We have said it before: just because ETFs have many obvious benefits, it doesn’t mean that all ETFs are created equal. We can help you to carefully analyze the pros and cons of each ETF and show you how they can help you reach your financial goals.

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