ETF Checklist: How to Choose an ETF

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

If you've learned the basics of exchange-traded funds (ETFs), the next question is often: How do I choose an ETF that aligns with my goals?

The good news is that comparing ETFs does not have to be complicated. While there are thousands of ETFs available, most can be assessed using a handful of key criteria.

This ETF checklist walks you through factors to consider before investing. Whether you're building a long-term portfolio or setting up an ETF savings plan, understanding these elements can help you make more informed decisions.

Key considerations when selecting an ETF

When comparing ETFs, you can start with six key questions:

1. Which index does the ETF track?

2. What are the costs?

3. How does the ETF handle income?

4. What is the risk level?

5. Which currency is it traded in?

6. Have you checked the ticker and identification numbers?

Let's break down each point together.

1. Start with the index

The index is arguably the most important factor when selecting an ETF.

Most ETFs are designed to track an index, which is simply a collection of securities that follow a specific market, country, sector, theme or investment strategy.

For example:

• A global equity index provides exposure to companies from multiple countries

• A European equity index focuses on companies listed in Europe

• A technology index concentrates on technology-related businesses

• A dividend index focuses on companies that pay regular dividends

The index determines what you invest in and therefore has the biggest influence on your portfolio's risk and return characteristics.

Before comparing costs or other features, you can ask yourself:

• Which markets do you want exposure to?

• What is your investment horizon?

• Does the index fit your investment goals?

Many investors make the mistake of comparing ETFs that track entirely different indices. In practice, choosing the underlying index comes first. The ETF is simply the vehicle that provides that exposure.

2. Check the costs

Every ETF comes with ongoing costs.

One of the most commonly used measures is the Total Expense Ratio (TER).

The TER represents the annual cost of operating the ETF and is deducted within the fund. You do not receive a separate bill, but the cost is reflected in the ETF's performance over time.

For example, an ETF with a TER of 0.10% generally costs less to operate than one with a TER of 0.40%.

In addition to the ETF's own costs, your investment platform may charge fees for buying, selling or holding investments.

When comparing similar ETFs, looking at total costs can be worthwhile because small differences may become more significant over long investment periods.

ETF cost checklist

You can…

✓ Compare the TER of similar ETFs

✓ Check platform fees separately

✓ Focus on total costs, not just one fee

✓ Remember that lower costs do not automatically make an ETF better

3. Understand how the ETF handles income

Two ETFs tracking the same index can still behave differently.

One reason is how they manage income generated by the underlying investments.

You'll often see two main approaches:

Accumulating ETFs

Accumulating ETFs automatically reinvest income back into the fund.

This means any dividends or distributions are used to purchase additional assets within the ETF. Many long-term investors prefer this approach because it keeps money invested and allows compounding to work over time. Compounding means that returns can generate additional returns when they remain invested.

Distributing ETFs

Distributing ETFs pay income directly to investors according to a predefined schedule. Some investors prefer this option if they want a regular income stream or greater control over how those payments are used.

Neither structure is inherently better. The right choice depends on your objectives and personal preferences.

4. Review the risk indicator

Most ETFs include a Summary Risk Indicator (SRI) on a scale from 1 to 7.

In simple terms:

• Lower numbers generally indicate a lower overall level of risk.

• Higher numbers generally indicate a higher overall level of risk.

The indicator is designed to help investors compare products consistently. Under the PRIIPs framework, the rating takes into account different risk factors, including market risk and, where relevant, credit risk.

However, it is important to remember that the indicator is not a forecast of future performance or future risk. An ETF with a lower risk rating can still lose value, while an ETF with a higher rating may deliver strong returns over certain periods.

When assessing an ETF, consider whether the level of risk is appropriate for your investment objectives, time horizon and ability to tolerate market fluctuations. You may also check the regulatory documentations. such as the prospectus and KID.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Risk management cannot fully eliminate the risk of investment loss.

5. Understand the trading currency

Many ETFs are available in multiple trading currencies, including euros (EUR), British pounds (GBP) or US dollars (USD). This often causes confusion among newer investors.

The trading currency is simply the currency used when buying and selling the ETF on an exchange. It does not necessarily determine what assets the ETF holds.

For example, two versions of the same ETF may invest in exactly the same companies but trade in different currencies.

In many cases:

• The index remains identical

• The holdings remain identical

• Performance remains driven by the same underlying investments

The currency option can mainly affect how the ETF is traded rather than what it invests in.

The return of your investment may increase or decrease as a result of currency fluctuations.

6. Verify the ticker, ISIN and security identifier

ETF names can be long and similar.

In addition, there may be several versions of an ETF that differ by:

• Currency

• Income treatment

• Exchange listing

• Share class

This is why investors should check the product identifiers before investing.

Ticker

A ticker is a short trading code used to identify a specific ETF on an exchange.

ISIN

The International Securities Identification Number (ISIN) is a unique global identifier assigned to a financial instrument.

WKN

In Germany, many investors also use the Wertpapierkennnummer (WKN), a six-character security identification code.

Before investing, double-check these identifiers to ensure you are selecting the ETF you intended to buy.

Quick ETF selection checklist

Before investing in an ETF, you can review the following:

Where can you find this information?

Most of the information discussed above can be found in an ETF factsheet, Key Information Document (KID) or on the issuer's website and prospectus.

Reviewing these documents before investing can help you better understand how an ETF works and how it fits into your overall investment strategy.

Final thoughts

Choosing an ETF is often less about finding the "best" ETF and more about finding the one that aligns with your goals.

You can start with the index, then compare costs, income treatment, risk level, currency and product identifiers. Working through this ETF checklist can help you compare products more consistently and avoid common mistakes.

The better you understand what you're buying, the better equipped you are to evaluate whether it aligns with your investment objectives and risk tolerance.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Frequently Asked Questions 

Can two ETFs with the same name actually be different products?

Yes. ETFs from the same provider tracking the same index can exist in multiple versions that differ by trading currency, income treatment, exchange listing, or share class. Always verify the ISIN or ticker before investing to confirm you are buying the specific version you intend.

Does the currency an ETF trades in change what it invests in?

Not necessarily. Two versions of the same ETF can trade in different currencies while holding exactly the same companies and tracking the same index. The trading currency affects how you buy and sell the ETF on an exchange, not the underlying investments.

Does a lower risk rating mean an ETF is safe?

No. A lower risk rating does not mean an investment is risk-free. The Summary Risk Indicator (SRI) measures the overall level of risk associated with a product on a scale of 1 to 7 and is not a forecast of future performance.

Even ETFs with lower risk ratings can fall in value, and you could lose some or all of your investment. Before investing, consider whether the level of risk is appropriate for your financial goals, investment time horizon and tolerance for market fluctuations.

Should I compare ETFs that track different indices?

It is generally more useful to compare ETFs that track the same or very similar indices, since the index is the primary driver of risk and return. Comparing ETFs across different indices is closer to choosing between entirely different investments rather than evaluating product quality.

Where can I find the key information needed to compare ETFs?

An ETF’s factsheet and Key Information Document (PRIIP KID) are practical starting points. They typically provide information about the tracked index, costs, risk indicator and income treatment, while the issuer’s product page may also show identifiers, available share classes and exchange listings.