How To Analyze ETFs

2021-06-01

Introduction

One of the most asked questions I receive is; how do I evaluate ETFs?  As Mr. Valuation, my answer is rather simple and straightforward.  An ETF is only as good as the sum of its parts.  Therefore, in my humble opinion, the best way to analyze and evaluate the attractiveness of an ETF is to look at each of the individual parts.  Of course, the logical next question is how do I do that?

How Does Mr. Valuation Analyze ETFs?

For me, and as the co-founder of FAST Graphs, I turn to my fundamentals analyzer software tool to analyze ETFs just as I do individual stocks. FAST is an acronym for fundamentals analyzer software tool.  At their core, FAST Graphs focuses on valuation based on fundamentals first and then stock price secondarily.  Since an ETF is simply a portfolio of individual assets such as stocks, if it is an equity ETF, I believe it simply makes sense to evaluate the individual portfolio constituents.  When doing this, I am asking and answering the question – would I invest in the stocks the ETF is comprised of today on my own?

To be clear, FAST Graphs are designed to analyze individual stocks.  However, you can take the portfolio holdings of an ETF and create a portfolio review in FAST Graphs and then do a deep dive on valuation.  In this video I take a deep dive look at two income ETFs with very different characteristics.  The Global X NASDAQ 100 covered call ETF–QYLD, and the Schwab US dividend equity ETF-SCHD.  Although there are many good services such as Morningstar that provide granular data on ETFs and mutual funds, etc., I personally prefer analyzing the individual parts utilizing FAST Graphs to provide me a truly comprehensive evaluation.

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