Index
An exchange-traded fund (ETF) is a collection of securities that trades on an exchange just like a stock. ETFs can contain all types of investments, including stocks, commodities, or bonds. Some ETFs offer United States holdings only, while others are international. ETFs provide a convenient way of owning positions in several stocks that would be too expensive to buy individually.
This evaluation of ETFs uses the information from Yahoo Finance and a spreadsheet. ETFs and stocks can have very volatile prices depending on market conditions. For this reason, it makes sense to look at the 5-year performance. This long-term perspective gives a better assessment of the ETF performance. As an example, we are going to examine IVW iShares S&P 500 Growth ETF (IVW). Look carefully at the following image.
Information from the Yahoo Finance Summary
The heading has the name of the ETF, its trading symbol, and it is followed by
the current market price in large numbers, which is $72.86 dollars in this case.
Make sure to click on the 5-Year option to get the 5-year chart. By placing the mouse cursor at the beginning of the chart we can obtain the original price of the ETF 5 years ago (circled in red). The summary also contains the Yield, which corresponds to the yearly dividends paid by the ETF, and the Expense ratio, which is the rate charged for maintenance of the ETF. In general, a larger expense ratio reduces the profit of the ETF holder.
The Yahoo Finance Summary page also has the top holdings of the IVW ETF, as shown in the following image. This ETF invests 13.04% of the assets in Apple stock, and 7.57% on Microsoft stock. Seven of the top 10 holdings are in the Information Technology sector, two are in the Healthcare sector and one is in the Energy sector. Overall, the performance of this ETF relies heavily on technology companies.
Comparing ETFs
The following image shows a spreadsheet with ETF names, their symbol, the original price 5 years ago, the current market price, the dividend, the expense ratio,
and the 5-year growth as a percentage. The percentage can be negative if the ETF is worth less today than five years ago. The last column has the value of
a $100 dollar investment after five years taking into consideration the dividends paid.
The ETFs that more than doubled in value have a 5-year growth that exceeds 100%. The spreadsheet shows several ETFs that have better performance and lower expense ratios than IVW. Looking at several ETFs side-by-side makes it possible to make better investment decisions. Of course, this analysis is based on historical performance, and we have to remember that past performance is not indicative of future results.
