Business - Your Money A look at new tools to comparison-shop for ETFs

By Mark Jewell

AP Personal Finance Writer

BOSTON (AP) -- It seems every other day a new exchange-traded fund hits the market. The increasingly specialized investments continue to carve the market into ever-narrower slices.

ETFs are baskets of stocks or bonds that mirror market indexes, and can be traded like stocks during daily trading sessions. That makes it possible to lock in a preferred price without waiting until the end of the day for a closing price, unlike with mutual funds.

They're alternatives to mutual funds, with their typically lower fees a key selling point. Financial advisers are increasingly pitching ETFs to individual investors, and they're even emerging as options in company retirement plans.

They now total almost 900. Over the past four years, a new ETF rolled out an average of once every two-and-a-half days.

How to sort through them all? New online tools help investors comparison-shop, and assess how an ETF stacks up against an index mutual fund with a similar mix of stocks or bonds.

The proliferation of tools is a response to the increasingly narrow approach ETFs are taking, creating a dizzying array of options. Want to invest in stocks of small South Korean companies, but don't know where to start? There's now the IQ South Korea Small Cap ETF, which holds a group of those under-the-radar stocks. Think there's money to be made on growing industrial demand for palladium? There's ETFS Physical Palladium Shares, an ETF that gives investors stakes in palladium-stocked vaults.

Of course there are also broad-based ETFs that buy stocks across the U.S. market, too. They're more appropriate choices for investors who don't want to speculate on a tiny and sometimes unusually volatile market segment.

If you're new to ETFs, also be aware that differences in how they're traded mean ETFs frequently offer tax advantages over traditional mutual funds, if they're held outside retirement plans.

Here are two of the latest companies offering free ETF comparison tools online, followed by other established players:

FIDELITY INVESTMENTS:

The second-largest mutual fund provider behind Vanguard hasn't been a player in directly offering ETFs, instead serving as a distributor offering its clients ETFs managed by other firms like iShares.

But this month, Fidelity expanded its online ETF research offerings with tools called ETF/ETP (Exchange-Traded Product) Screener and ETF Snapshot. The tools are accessible from the ETF section at http:www.fidelity.com/research.

They're free, regardless of whether you're a Fidelity customer.

Fidelity cut licensing deals with other firms to slice the ETF world in almost every way imaginable, depending on an investor's objectives. There are more than 100 screening criteria, based on variables such as portfolio assets, trading volume, performance, and volatility. Premium areas of the site link to research on specific ETFs, and are free only to Fidelity's brokerage clients.

The level of detail is mind-numbing, and more than most investors would want. For example, an analysis of one ETF yields a list of its 906 stock holdings, sortable in every conceivable way. You can compare the ETF to seven others that are similar. Of course, you don't have to dive that deep.

MARKETRIDERS:

This startup launched by venture capitalists in California's Silicon Valley is unabashedly pro-ETF. MarketRiders was founded on the belief that ETFs' lower costs offer far more bang for an investor's dollar than actively-managed mutual funds.

It's important to remember that bias when using MarketRiders' Fund Fee Analyzer, introduced in late May. It's an online service to compare how fees for more than 13,000 shareholder classes of mutual funds stack up with those at ETFs holding stocks or bonds within roughly the same market segments. The comparisons include low-cost index funds versus ETFs, which in many instances may hold practically the same portfolios, with different costs. It's a free tool, but is designed to drum up business for the company's $9.95-a-month online portfolio management service.

MarketRiders' tool -- at http://www.marketriders.com/mutualfund-fee-calculator -- is simple in ways that Fidelity's ETF screener isn't.

Plug in a few mutual funds that you own, and the amount invested in each. The tool shows the fees you pay compared with a group of ETFs investing in the same market segments. For example, I compiled a sample portfolio of four funds, three of them actively managed funds with strong performance records, all with lower-than-average fees among their peers. The fourth was an index fund with above-average fees.

MarketRiders calculated that I could have bought three similar ETFs, and cut $514 in annual fund fees on a $40,000 portfolio. The ETFs collectively charged $36 per year in fees, versus $550 for the mutual funds. Over 20 years, MarketRiders estimated I could save more than $35,000 by going with the ETFs -- approaching the $40,000 originally invested in the sample portfolio. That potential savings really hits home.

Of course, MarketRiders and Fidelity aren't the only ones offering free online tools for comparison-shopping ETFs. A few other well-known tools are offered by market exchange Nasdaq, brokerage company Charles Schwab, fund tracker Morningstar, and the magazine SmartMoney.

Published: Wed, Jul 28, 2010

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