How We Assess an ETF’s Risk

Article Excerpt

To help you decide if certain ETFs are suitable for your portfolio and investment temperament, we classify them into three easy-to-understand categories: Conservative, Aggressive and Income. To determine how an ETF fits into one of those three classifications, we examine a number of factors. They include Stock holdings. We look carefully at the specific stocks the ETF holds, and their prospects. We also look at the track record of the ETF’s managers to see if they are likely to make good stock selections. Diversification. The broader the ETF’s holdings, the less volatile its performance is likely to be. Liquidity. We look at an ETF’s size and how many units trade hands per day. With more liquidity, the bid/ask spread for shares of a stock will be narrower. Political and currency risk. This is especially important for country-specific ETFs and those that focus on international stocks, outside of Canada and the U.S. U.S….

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