Don’t let big name ETF labels distract - Morningstar

Investors interested in adding ETFs into their portfolio should be less swayed by well-known brand labels and pay close attention to what is underneath, says the research house.

Wednesday, March 12th 2025, 6:54AM

by Kim Savage

Investors interested in adding ETFs into their portfolio should be less swayed by well-known brand labels and pay close attention to what is underneath, says the research house.

Global and US ETFs offered by the likes of Vanguard, iShares, Charles Schwab and Invesco are consistently rated highly for performance and according to inflows, are proving popular with investors.

Speaking at an investor event, Morningstar Director of Personal Finance Mark LaMonica busted myths, explaining investors don’t actually invest in an ETF, they invest in what is inside.

“It can be Bitcoin, it can be bonds, it can be shares. So the ETF is just an investment vehicle.

“Particularly with some of these thematic ETFs that have these exciting names on it, people think, ‘oh, I'm investing in this because that's the name of the ETF’.

“These studies looked at investors that held just ETFs in general and non-ETFs in their portfolios. The returns were lower for people with ETFs because they were trading them too much.”

“You have to understand what's in that ETF. That's what you're investing in.”

Trading behaviour can be a concern for investors not being properly advised, says LaMonica, and studies show their returns are suffering as a result.

“These studies looked at investors that held just ETFs in general and non-ETFs in their portfolios. The returns were lower for people with ETFs because they were trading them too much.”

As well as the low cost of ETFs, easy access to a range of options, without the need for an advisor or fund manager appeals to some investors, he says, but there are sometimes consequences.

“Just because you can do that doesn't mean that it is going to help your returns, especially if you behave poorly. So think more about behavior than about which ETFs or managed funds or anything else, because that's going to dictate returns.”

Tags: EFT Exchange-Traded Fund