How to monitor ETF performance

1. Compare it to other ETFs

Use resources like Globefund or Morningstar to see how an ETF is performing relative to other similar funds.

2. Compare it to its benchmark

Most passive ETFs track a specific benchmarkBenchmark A yardstick that you can use to measure the performance of an investment. Example: a stock market index may be a benchmark you can use to compare how well your own stocks are doing.+ read full definition. However, the ETF might deviate from the indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition occasionally, especially when demand for an ETF drives its shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition prices up or down. This is called tracking error and it can put an ETF temporarily out of synch with the index it tracks. You can also use a benchmark that tracks a similar set of investments (for example, the S&P 500 Index) to monitor the performance of active ETFs. Fees and expenses paid by the ETF reduce its returns – the ETF returns will not exactly match the returns of the benchmark.

3. Add up the fees

Fees and commissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition reduce your ETFs returns. Learn more about ETF fees.

4. Disclosure documents

These documents contain information that can help you to assess an ETF. Securities regulators require ETFs to file documents such as:

• ETF summary document
• the prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition
• periodic portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition disclosure – for example, the top 25 portfolio holdingsHoldings Shares or other interests in a business. Also refers to investments in a portfolio.+ read full definition on a quarterly basis and full portfolio listing on a semi-annual and annual basis.
• management reports of fund performance

They’re available from

• the ETF provider
• the System for Electronic Document Analysis and Retrieval (SEDAR).

5. Review account statements

Review your accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition statements to see how your investments are doing and keep track of the costs you’re paying. Then compare the performance of your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition portfolio against your goals and the guidelines set out in your investment policy statement, if you have one.

6. Consult your advisor

If you have an advisor, ask them to explain why the price of your ETFs have suddenly fallen or risen – and what that means for your portfolio.

7. Follow stock market news

Are we in a bear marketBear market A weak market where stock prices fall and investor confidence fades. Often happens when an economy is in recession and unemployment is high, with rising prices.+ read full definition? A bull marketBull market A strong market where stock prices rise and investor confidence grows. Often tied to economic recovery or an economic boom, as well as investor optimism.+ read full definition? Is the market up or down in general? The value of the ETF will be affected by any factors that affect the price of the stocks, bonds or other assets making up that ETF. You can find lots of information at the Toronto Stock Exchange.

8. General economic news

Read the business sections of major newspapers to find out what’s happening in the economy. Are interest rates going up? What’s the inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition rate? How is the Canadian dollar doing against other currencies? Learn more about how economic factors can affect stock prices.

Warning

Don’t chase performance. Just because an ETF did well last year doesn’t mean it will achieve the same return this year. Make sure it fits with your investment goals and your other investments.

Key point

How an ETF has performed in the past can’t tell you how it will perform in the future. But it can give you an idea of how the ETF has performed in different market conditions.

Caution

Fees reduce the return on your investment. The management fees and operating expenses (MER) paid by a fund are reflected in its published rate of return.