A milestone – whether a birth, marriage, or promotion – tends to prompt examination and reflection. When, for the first time, total global ETF assets topped $4 trillion in April1, that lofty threshold led us to revisit something we take as gospel: ETFs’ transparency.
Sure, an ETF’s holdings are visible – so visible that they often go unexamined. That’s precisely why we always take a closer look. When we do, we consistently discover that what you see isn’t always what you expect. For instance, two small cap ETFs might define “small cap” very differently. Under a standard definition of small caps (less than $2 Billion of market value), our research suspects that many investors will be surprised to learn that one ETF has only about 21% small caps while another has about 64%.
That’s not to say that the ETFs are being disingenuous. The transparency is there, but you still have to look under the hood. Other examples, only upon close examination, investors may uncover an inherent value factor bias in an issuer’s core ETFs or detect an issuer that includes the same stock in its large, mid, and small cap ETFs. So, embrace the transparency and use it to your advantage.
At Toroso, we’re enthusiastic evangelists for the ETF industry – in part because of its inherent transparency. Our belief in ETFs led us to develop the Toroso ETF Industry Index (Ticker TETF.Index). It monitors publicly traded companies linked to the ETF universe, whether as fund sponsors, trading and custody platforms, or exchanges.
In celebration of the industry’s $4 trillion milestone, read our white paper on ETF transparency published on ETF.com and take advantage of the opportunity to have the ETF gurus at Toroso look under the hood of your portfolio.