8 critères pour choisir les meilleurs ETF

Summary

In this video, the speaker shares 8 important criteria for selecting the best ETFs (Exchange-Traded Funds). These criteria include choosing ETFs with physical replication, capitalizing on dividends, avoiding currency hedging, ensuring a long track record, and investing in large ETFs with substantial assets under management. The speaker emphasizes the importance of performance tracking, alignment with the underlying index, and availability on investment platforms. Practical examples are provided using the Just ETF website and the speaker's personal investments, offering viewers useful insights on how to make informed ETF investment choices.

Takeaways

• 😀 The importance of having clear criteria when choosing ETFs to avoid being overwhelmed by the vast number of options (over 9,000 ETFs).
• 😀 The first key criterion is the type of replication used by the ETF: physical replication (buying the underlying assets), optimized physical replication, or synthetic replication (contract-based replication).
• 😀 Synthetic replication can carry higher counterparty risk because it involves private contracts with financial institutions, making it less transparent for investors.
• 😀 It's recommended to choose ETFs that capitalize rather than distribute dividends, as capitalizing ETFs avoid tax friction and lead to faster compound growth.
• 😀 Choose ETFs that are not hedged against currency risk if you want exposure to foreign currencies like the US dollar, as it adds diversification to your portfolio.
• 😀 The ETF should have been established for at least 3 years, ideally 5, to observe its performance and track its accuracy in replicating the index.
• 😀 The ETF should have at least 500 million euros in assets under management (AUM), ideally 1 billion euros or more, to minimize the risk of the fund being discontinued by the provider.
• 😀 Ensure that the ETF closely tracks the performance of its underlying index, as indicated by performance data and charts that compare the ETF with its benchmark index.
• 😀 Be aware of the type of index the ETF tracks. For instance, an ETF replicating the S&P 500 should track a total return index, which includes both capital gains and dividends.
• 😀 Lastly, verify that the ETF is available on your investment platform, as availability may differ depending on the platform you're using.

Q & A

Why is it important to have criteria when choosing the best ETFs?

Having criteria helps filter through the vast amount of ETFs available (over 9,000) and ensures that the investor can make informed decisions rather than being overwhelmed by the sheer volume of information.

What is the first criterion for selecting an ETF?

The first criterion is the type of replication. There are three types: physical replication, optimized physical replication, and synthetic replication. The preference is usually for physical replication, where the ETF manager buys the actual components of the index.

What is the difference between physical and synthetic replication?

In physical replication, the ETF manager directly purchases the assets in the index. In synthetic replication, the manager enters into contracts with financial institutions that guarantee the performance of the index, which increases counterparty risk.

Why should investors avoid synthetic replication ETFs?

Investors should avoid synthetic replication ETFs due to the higher counterparty risk. If one of the institutions involved in the contract fails, the investor's protection is unclear since these contracts are private.

What is the second criterion when choosing an ETF?

The second criterion is that the ETF should capitalize rather than distribute dividends. Capitalization helps avoid tax friction and enables the compounding of returns, leading to faster growth of the investment.

Why is it important for an ETF to not cover currency risk?

Investors who want to be exposed to other currencies (like the US dollar) through an ETF should not have their risk covered. This allows them to benefit from currency fluctuations, which is especially important when investing in international indices like the S&P 500.

How long should an ETF exist before being considered for investment?

An ETF should have been in existence for at least three years, ideally five years, to provide enough data to assess its performance and to verify that it closely tracks the index it replicates.

Why is the size of an ETF important?

The size of an ETF is crucial because larger ETFs are less likely to be discontinued. Smaller ETFs may carry operational risks, and a fund with fewer assets under management could be more volatile and less liquid.

How does the performance of an ETF relate to its underlying index?

The ETF should closely replicate the performance of its underlying index. This is particularly important for widely known indices like the S&P 500, where the performance should mirror the price movement and dividend yield of the index.

What is the final criterion when choosing an ETF?

The final criterion is checking if the ETF is available on the investor's trading platform. For instance, in the video, the author uses Trade Republic to invest in ETFs, and it is important to ensure that the chosen ETF is accessible on the selected platform.