How to Use an ETF Screening Tool


How to Use an ETF Screening Tool

An exchange-traded fund (ETF) screener is a tool that helps investors analyse the performance of an ETF. It is an Internet-based software programme that allows users to narrowdown the best ETFs available in the market using filters and parameters.

What is an ETF?

An ETF is a basket of securities that tracks an index, equities, bonds, commodities, currencies or other asset classes. ETFs are traded on the stock exchange like regular stocks. Their core benefits include liquidity,portfolio diversification, lower cost of entrythan the typical mutual fund and transparency.

How ETF screeners work

ETF screeners are tools that you can find online, like on the POEMS platform. The screeners help you pick a set of funds for close analysis. All you need to do is to apply the filters as efficiently as you can. In general:

  1. You start with a particular type of ETF or set of ETFs whose performance you wish to analyse. 
  2. Say, you start with a large-cap-stock ETF. The tool will list all the ETFs that track large-cap stocks.
  3. From here, you have to narrow your selection down to sub-categories such as large-cap growth funds or large-cap value funds.
  4. Then choose data subsets like expense ratio, risks, pricing, fundamentals or other metricsyou wish to analyse. 

Some of the parameters used in ETF screenersforanalysing ETFs are: 

  1. Exchange: The marketplace for buying and selling the ETF securities such as the SGX, NASDAQ, NYSE, etc.
  2. Asset class: The bundle of securities with the same characteristics. For example, equities, fixed income andcommodities. 
  3. Country / Region: ETFs may be limited to a geographical area like the US, Singapore, Asia etc.
  4. Sector: The business segment dealing with similar products or services such as agriculture, IT, fast-moving consumer goodsetc.  
  5. Investment strategy: Investment strategyparameters like: 
  • Risk tolerance: Allocationsare based on the risk-taking ability of investors, such as aggressive, moderate or conservative.
  • Target date:The portfolio contains securities that will matureat the same time, such as 2022-2030. 
  • Time horizon:A basket of securities with similar maturity horizons such as long-term, medium-term and short-term. 
  • Volatility:ETF funds are assessed for their volatility and rankedaccordingly.
  1. Style: For bonds, you can screen their credit ratings and maturity dates. For stocks, you can screen theirmarket caps.
  2. Trading currency: The currency in which the ETF is being traded such as US$, C$, NT$ etc.

Along with these generic parameters, there are advanced filters like expense ratio, P/E ratio, P/B ratio, YTD returns, risk categories and so on.

You can also customiseyour own parameters. 

Takeaway 

ETF screeners will only eliminate some of the guesswork involved in picking funds. You will still need to doresearch to choose the right set of securities that fit your financial situation and goals.