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Expense Ratio Number One Criteria When Selecting an ETF

Traders Magazine Online News, February 14, 2018

John D'Antona Jr.

So, why do investors choose certain exchange-traded funds over others?

Everyone admits that ETFs offer trading flexibility, transparency, tax efficiency and low cost, not to mention other advantages over other securities. But what does the buy-side favor the most?

Brown Brothers Harriman, in its latest year-end 2017 ETF Investor Survey, canvassed global ETF investors and found some interesting data points explaining how they decide which and what ETFs to buy. First, respondents ranked expense ratio as the #1 selection criteria, bolstering the case that ETFs offer low cost trading flexibility and transparency, especially when viewed against some of the underlying stock valuations. The firm we partnered with to gauge sentiment of professional ETF investors in the US. It surveyed 360 financial investors, RIAs, and institutional investors to identify emerging trends in the ETF market.

And BBH noted that global assets invested in ETFs continued to reach new records in 2017, surpassing $4 trillion in ETP assets. The US, the custodian said, remains the largest ETF market, with assets totaling $3.25 trillion across more than 2,000 products.

A second interesting tidbit the global custodian found in its survey was that 42% of professional ETF investors said that tax efficiency is very important when selecting an ETF.

Respondents ranked expense ratio as the #1 criteria, bolstering the case that ETFs offer trading flexibility, transparency and tax efficiency at a low cost.

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