Morningstar now offers four data points to assess the costs and risks associated with ETFs. Three data points, Tracking Error, Estimated holding cost and Market impact cost help investors compare costs with performance and liquidity in the secondary market. The fourth point, Portfolio Concentration, measures concentration of portfolio in single or small number of variables like countries, segments or credit grades.
Tracking error compares ETF’s performance with that of the index it tracks. Investors can assess potential variation between the two using this data point.
Estimated holding cost covers costs to manage and run the fund. It helps investors determine long term deviations from average cost of management.
Market impact cost measures the change in price of ETF per $100,000 trade. This cost is measured as basis point change in the price.
The last data point covers those aspects which affect investment risk. The combination of the four different points is expected to help investors assess costs better.
