How to determine which ETFs to invest in
As with stocks, there are many different ways to invest in ETFs. We have developed a unique Bull And Bear Profits approach to ETF investing. It combines technical chart analysis with fundamental ETF analysis.
Similar to stocks, here are the key technicals we recommend focusing on before buying an ETF:
- Identify ETFs that are in a “bull market” uptrend. That means they are in a rising price trend as determined by various technical indicators. Note that inverse “short” ETFs are in a bull market uptrend when the underlying investment is in a bear market downtrend.
- Determine that the ETF is also outperforming the market, as represented by a “benchmark” index such as the S&P 500.
- Finally, after determining that the ETF is in a bull market uptrend and is outperforming the benchmark, it is important to confirm it is not “overbought,” which usually signals peaking, at least on a short-term basis.
Again, you can learn about these and other key technical indicators in our free Special Report titled “How To Use Technical Analysis To Invest For Bull And Bear Profits,” as well as a our free Webinar titled ““How To Use Stock Market Indicators To Invest For Bull And Bear Profits.”
After an ETF passes these technical tests, it is important to analyze the fundamentals of the ETF. Here are...
| KEY ETF FUNDAMENTALS WE RECOMMENDour |
| - If it is an active ETF, it should have a strong track record of beating its benchmark and a compelling strategy to continue to do so in the future.
- Solid fundamentals of stocks held, if it is a stock ETF (see previous list discussing good stock fundamental characteristics).
- Favorable economic environment for the given ETF. For example, a favorable environment for a bond ETF is when inflation and interest rates are falling, while a favorable environment for a gold ETF is often when inflation and interest rates are rising. If the economy is in a recession or expected to enter one soon, then it is usually better to buy an inverse “short” stock ETF rather than a traditional long stock ETF.
- Favorable investment theme, if appropriate. For example, an ETF investing in artificial intelligence stocks is probably more interesting in the twenty-first century than an ETF investing in railroads.
- Low costs, as determined by the expense ratio. Passive index ETFs generally have much lower costs than active ETFs.
- High liquidity, so that the ETF is easy to buy and sell, with a relatively large market capitalization (calculated as number of shares times share price), high daily trading volume (calculated as average number of shares traded daily times average price) and narrow bid-ask spreads (i.e., the average difference between the bid price, which is what the market is willing to buy the ETF for, and the ask price, which is what the market is willing to sell the ETF for).
- High quality and respected ETF manager such as Vanguard, Fidelity, Schwab, BlackRock, State Street, PowerShares, WisdomTree, Guggenheim and ProShares (particularly for levered and inverse ETFs).
|
|