Cost And Tracking Key When Picking An ETF

June 13, 2014

Cost ratio and tracking are the most important aspects when picking an ETF, according to the managing director of EBI Portfolios.

ETFs are marketed on the premise that they are simple, transparent, low cost and offer the ability to trade intraday, meaning that investors can get in and out of the market when needed.

However, Craig Burgess, managing director at EBI Portfolios who was speaking on the ETF Strategists panel at the Inside ETFs Europe Conference last week, said that ETFs have a lot of advantages, but there are certain elements such as transparency and intraday trading that are not always of interest to clients.

“I am passive so intraday trading is of no interest because we buy and hold.  Transparency is also talked about, and this is of no interest to our clients. I’m still of the Rick Ferri school of thinking that this stuff is remarkably simple actually,” he said.

When talking about how he uses ETFs and their benefits he said that accessing the asset class with the best cost ratio and tracking were the most important aspects.

“A lot of the stuff that is talked about is of no interest to us or our clients. We just want to buy asset classes for the lowest cost we can with the best tracking. If it’s an ETF it’s an ETF if it’s not then that’s OK too,” said Burgess.

Shaun Port, chief investment officer at Nutmeg, who was also sitting on the panel added that his firm are champions of ETFs, but do use other fund vehicles when they really need to.

Some of the asset classes aren’t suited to an open ended fund structure so you may need to look at a unit trust or a closed end fund structure,” said Port. “But I think most asset classes you can get in with an ETF. There is a lot of granularity with an ETF. You just need to really understand the index so when you go away from main large cap equity you  know what’s in the basket and that requires a lot of due diligence to know what is under the hood.

Burgess also added that the industry is still making ETFs sound complicated.

He said: “At this conference people are still making ETFs sound complicated and my message to retail investors would be that in fact, they are quite simple.”


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