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What You Need to Know Before Choosing a Stock ETF

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Manage episode 505836288 series 2753
Content provided by Morningstar. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Morningstar or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://podcastplayer.com/legal.

Exchange-traded fund launches have continued to accelerate, but not every shiny new strategy is worth owning. Good investment strategies can compensate investors with an appropriate return for the risks they take on. What kinds of ETFs are able to deliver over the long term, and which ones fall short? Dan Sotiroff is joining me today to explain the hidden risks in stock ETFs and what investors should look out for. Dan is a senior manager research analyst for Morningstar Research Services and the editor of Morningstar’s ETFInvestor newsletter.

Can you talk about the idea that ETFs should be able to compensate investors for the risk they take on? What is an “appropriate level of return”?

When looking at the risk and return profiles of ETFs, the term “active risk” often comes up. Can you give us a definition?

What kinds of funds have the lowest active risk?

Can you give an example of two ETFs that appear similar but take on different levels of risk?

You’ve written that “any stock ETF with fewer than 100 holdings is a red flag.” Why is that?

Does the management style of the fund make a difference for concentrated funds? Would a passive, index-tracking ETF run into the same issues as an actively managed ETF?

Thematic ETFs are a popular example of concentrated portfolios with high active risk. How have they performed?

Do investors tend to miss the timing on thematic funds? It seems like strong returns tend to be short-lived.

At Morningstar, we often talk about fees as a predictor of performance. Do you see the same thing here?

Should investors always choose a fund that takes on predictable risk? Or are there cases where higher active risk is worth it?

What is one takeaway you have for investors that are trying to choose an ETF?

Read about topics from this episode.

Subscribe to Morningstar’s ETFInvestor newsletter.

The Hidden Risks in New ETFs

The Best ETFs and How They Fit in Your Portfolio

Morningstar′s Guide to ETF Investing

Passive Funds Beat Active Amid This Year’s Market Volatility

What to watch from Morningstar.
Investing in AI? Here Are 6 Undervalued Stocks for Buy-and-Hold Investors

Do Dividend Stocks Benefit From Non-US Revenue?

This Classic Investment Strategy Is Still Alive in 2025

These 16 Standout Funds Are Making Big Bets. Do They Fit in Your Investment Portfolio?

Read what our team is writing.

Daniel Sotiroff

Margaret Giles

Follow us on social media.

Facebook: https://www.facebook.com/MorningstarInc/

X: https://x.com/MorningstarInc

Instagram: https://www.instagram.com/morningstar...

LinkedIn: https://www.linkedin.com/company/5161/

  continue reading

443 episodes

Artwork
iconShare
 
Manage episode 505836288 series 2753
Content provided by Morningstar. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Morningstar or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://podcastplayer.com/legal.

Exchange-traded fund launches have continued to accelerate, but not every shiny new strategy is worth owning. Good investment strategies can compensate investors with an appropriate return for the risks they take on. What kinds of ETFs are able to deliver over the long term, and which ones fall short? Dan Sotiroff is joining me today to explain the hidden risks in stock ETFs and what investors should look out for. Dan is a senior manager research analyst for Morningstar Research Services and the editor of Morningstar’s ETFInvestor newsletter.

Can you talk about the idea that ETFs should be able to compensate investors for the risk they take on? What is an “appropriate level of return”?

When looking at the risk and return profiles of ETFs, the term “active risk” often comes up. Can you give us a definition?

What kinds of funds have the lowest active risk?

Can you give an example of two ETFs that appear similar but take on different levels of risk?

You’ve written that “any stock ETF with fewer than 100 holdings is a red flag.” Why is that?

Does the management style of the fund make a difference for concentrated funds? Would a passive, index-tracking ETF run into the same issues as an actively managed ETF?

Thematic ETFs are a popular example of concentrated portfolios with high active risk. How have they performed?

Do investors tend to miss the timing on thematic funds? It seems like strong returns tend to be short-lived.

At Morningstar, we often talk about fees as a predictor of performance. Do you see the same thing here?

Should investors always choose a fund that takes on predictable risk? Or are there cases where higher active risk is worth it?

What is one takeaway you have for investors that are trying to choose an ETF?

Read about topics from this episode.

Subscribe to Morningstar’s ETFInvestor newsletter.

The Hidden Risks in New ETFs

The Best ETFs and How They Fit in Your Portfolio

Morningstar′s Guide to ETF Investing

Passive Funds Beat Active Amid This Year’s Market Volatility

What to watch from Morningstar.
Investing in AI? Here Are 6 Undervalued Stocks for Buy-and-Hold Investors

Do Dividend Stocks Benefit From Non-US Revenue?

This Classic Investment Strategy Is Still Alive in 2025

These 16 Standout Funds Are Making Big Bets. Do They Fit in Your Investment Portfolio?

Read what our team is writing.

Daniel Sotiroff

Margaret Giles

Follow us on social media.

Facebook: https://www.facebook.com/MorningstarInc/

X: https://x.com/MorningstarInc

Instagram: https://www.instagram.com/morningstar...

LinkedIn: https://www.linkedin.com/company/5161/

  continue reading

443 episodes

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