Article Spotlight: Read the Article
When selecting an investment product, it is crucial to research that product thoroughly to make sure that you understand exactly what you are purchasing. Often times, names or descriptions of funds or other investments can be quite misleading. This week, we want to highlight an article by Ana Kostioukova, an ETF Analyst at IndexUniverse, LLC.
In her article, Ms. Kostioukova dives into the components that actually make up certain ETFs, noting that some of the time, the name is quite deceptive. As an example, she analyzes the SPDR S&P Emerging Middle East and Africa ETF (Ticker: GAF) and determines it has a 90 percent exposure to South Africa with the remaining 10 percent in Egypt and Morocco. Clearly this product lacks any substantial Middle Eastern exposure, and in fact appears to be very close to being a single-country fund.
Another common confusion with ETF names is the way index providers classify countries. The Guggenheim Frontier Market ETF (Ticker: FRN) is categorized as a “frontier market ” fund, but many countries in the fund are categorized as emerging markets by other large index providers. For example, the fund is exposed to Chile, Colombia, Egypt, and Peru, which are categorized by BNY Mellon as frontier, but as emerging by MSCI, FTSE, and S&P. If you are selecting multiple ETFs to target certain classifications or countries, relying on the name alone can be detrimental to the diversification and risk management of your portfolio, as you may be investing in two ETFs that provide very similar exposure to certain risks.
As an individual investor, it is important to carefully scrutinize every fund you are considering for your portfolio. We recommend that investors analyze funds across a wide spectrum of asset classes so they can be sure that they are getting the exposure and diversification that they desire. Relying on ETF names alone is a poor choice for any investor. We encourage you to speak with an Empirical advisor or our investment team if you are interested in learning more about our fund selection process.