Exchange Traded Funds (ETFs) aim to reflect or track a specific index. They are usually cheaper than active funds but do not allow them to obtain a return beyond the index they seek to replicate.
There are several main parameters to consider when choosing an ETF :
• Which index are you looking for exposure to? You must decide in which market you would like to invest, and in that other market which index is most suitable for you to follow. For example, if you want
exposure to the US stock market, you can choose the .500 P&S Then you will have to consider the composition of the index you have chosen for example the composition of stocks in which, to
Ensuring it provides you with the exposure you are looking for. • What are the fund costs? Passive funds are generally cheaper, but their costs vary even when the funds track the same index.
• What is the tracking error of the foundation? The tracking error of a passive ray is a measure of how well it tracks the target it aims to replicate. Tracking errors can
occur as a result of the methodology used to track the index, costs incurred by the fund, and timing differences between the purchase and sale of securities in the fund
compared to the index itself.
• Who is the manager of the fund? You should look at the POS provider to make sure they have a good and financially secure record, in order to minimize the risks of the counterparty.
How Do We Evaluate Funds/ETFs
Global Evaluation Rating
Aurora’s Global Evaluation Rating combines multiple factors to give a broad overview of an investment at a particular point in time. These include fundamental and technical elements such as Valuation, Earnings Revisions Trend, Technical Trends, and Group Benchmarking, along with sensitivity (Risk) ratings based on the “Bear Markets” and “Bad News” Factor Metrics.
Star Rating Metric
This metric incorporates several factors including:
- Information Ratio
- Sharpe Ratio
- Momentum (Medium Term Technical Trend)
- 6m Rel Perf > 1%
We assess performance against each of these metrics and award a 0 to stars rating.
The information ratio shows the relationship between the Alpha and the Tracking-error. It measures an asset’s tendency to outperform (positive ratio) or underperform (negative ratio) its reference index within an equivalent risk structure
A high ratio shows that risk is being well rewarded.
The Sharpe ratio measures the performance of excess return (or risk premium) per unit of risk (volatility). This is done by taking the “asset return” less “the risk-free rate of return” and then dividing the result by volatility. The Sharpe number informs us of the assumed risk of an asset, indicating the payoff (excess return) per each unit of risk (volatility point). The higher the ratio, the better the asset.
6 months Relative Performance is a fund’s relative performance to its assigned benchmark compared to 6 months ago.
We determine Sensitivity by measuring the “Bear Market” Factor and the “Bad News” Factor against the benchmark and identify three levels:
Low Sensitivity: In this case, the sensitivity indicators fall below the world reference average.
Moderate Sensitivity: In this case, the sensitivity indicators are higher than the world reference average but lower than the standard deviation.
High Sensitivity: The sensitivity indicators are at levels higher than the standard deviation.
• Performance since the beginning of the year, one year, 3 years, 5 years
• Alpha: reflects the return of the fund in relation to the market return and the added value of the investment manager over a certain period of time.
A positive alpha indicates that the investment manager has outperformed the market.
• The information ratio (see above)
• Sharpe index (see above)
• Relative performance in 6 months
• The tracking error: shows the difference between the actual yield of the asset compared to the yield of its reference index. The lower the number of tracking errors,
The asset performance is closer to the benchmark.
• Beta: measures the sensitivity of the stock in relation to market movements.
• Correlation: measures the correlation of the stock relative to its reference index.
• Value at risk: measures the potential value loss of an asset or portfolio over a month.
• Volatility: the stock, whose daily price changes greatly over time, has high volatility.
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Aurora helps you to reduce your investment risk by analyzing and rating the sensitivity risk of each stock, fund, and portfolio.
The system provides financial information and data to help you identify investment ideas. However, we do not advise you or guide you about this or what products to purchase or sell – these decisions are yours only. SDIS and the system are not subject to regulation, and SDIS does not hold a license for investment advisory, investment marketing, or investment portfolio management under any law. The content provided on the system is independent and not based or tailored to your circumstances, To your needs, or your purposes, and should not be relied on as an estimate of profitability or the suitability of an investment in a particular stock for any purpose. Past performance is not a guarantee of present or future performance. Investments may lose their full value.