Unlock the clues hidden in ETF factsheets and make smarter investment decisions
At first glance, ETF factsheets may seem dull, but they’re actually full of valuable information. Learn how to spot what really matters and what to ignore so you can choose the ETF that fits your goals, not just the one with the flashiest name.
Start with the strategy
Every ETF follows a specific strategy. Some track well-known stock indices, such as the Swiss Market Index (SMI), which includes the 20 largest publicly traded Swiss companies, or the S&P 500, which tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Others focus on bonds, commodities, or niche markets.
As it is not possible to invest directly in an index, ETFs mimic its composition to do it for you. For example, if you invest in an SMI ETF, your money is allocated across those 20 companies in the same proportion as the index.
Factsheets usually include a fund description and an investment objective section. These provide a concise summary of how the ETF operates and its intended purpose. Don’t skip this section. They tell you whether your money is going into a broad market or a more specific area.
However, not all ETFs tracking the same index are identical. This brings us to the next point.
As it is not possible to invest directly in an index, ETFs mimic its composition to do it for you. For example, if you invest in an SMI ETF, your money is allocated across those 20 companies in the same proportion as the index.
Factsheets usually include a fund description and an investment objective section. These provide a concise summary of how the ETF operates and its intended purpose. Don’t skip this section. They tell you whether your money is going into a broad market or a more specific area.
However, not all ETFs tracking the same index are identical. This brings us to the next point.
Same index, different experience!
Although multiple ETFs can track the same index, they can still perform differently. A few key factors can explain this:
Total Expense Ratio (TER): The TER represents the annual costs of the ETF and is deducted directly from its performance. You won’t see this as a separate charge as it’s already factored into the returns. A lower TER generally means less drag on performance, but a high TER does not necessarily indicate a poor ETF. Other factors also matter.
Replication method: Some ETFs fully replicate an index by buying every stock in it, offering high accuracy and transparency. Others use sampling, buying only a representative selection to reduce costs, which can affect performance slightly. Then there’s synthetic replication, where ETFs use financial contracts (derivatives) that mimic the performance of the index instead of owning the actual stocks. This method is efficient, but it adds risk — especially if the counterparty behind the contract runs into trouble. Each method affects how closely the ETF tracks the index and the risks involved.
Fund size: Larger funds tend to have better liquidity and lower bid-ask spreads, making them easier and cheaper to trade. Very small ETFs may be at risk of closure if they do not attract enough investors.
Total Expense Ratio (TER): The TER represents the annual costs of the ETF and is deducted directly from its performance. You won’t see this as a separate charge as it’s already factored into the returns. A lower TER generally means less drag on performance, but a high TER does not necessarily indicate a poor ETF. Other factors also matter.
Replication method: Some ETFs fully replicate an index by buying every stock in it, offering high accuracy and transparency. Others use sampling, buying only a representative selection to reduce costs, which can affect performance slightly. Then there’s synthetic replication, where ETFs use financial contracts (derivatives) that mimic the performance of the index instead of owning the actual stocks. This method is efficient, but it adds risk — especially if the counterparty behind the contract runs into trouble. Each method affects how closely the ETF tracks the index and the risks involved.
Fund size: Larger funds tend to have better liquidity and lower bid-ask spreads, making them easier and cheaper to trade. Very small ETFs may be at risk of closure if they do not attract enough investors.
How ETFs handle dividends
Some ETFs pay dividends directly to investors. Others accumulate them and reinvest automatically.
Distributing ETFs: They pay dividends directly to investors at regular intervals (e.g. quarterly or annually). This is ideal if you want passive income.
Accumulating ETFs: Dividends are automatically reinvested, helping your investment to grow over time. This can be more tax-efficient in some cases, as well as being more practical if you plan to reinvest the dividends in the same ETF anyway.
Yuh tip: To find out how your ETF handles dividends, look under ‘dividend policy’, ‘distribution method’ or ‘yield information’ in the factsheet.
Distributing ETFs: They pay dividends directly to investors at regular intervals (e.g. quarterly or annually). This is ideal if you want passive income.
Accumulating ETFs: Dividends are automatically reinvested, helping your investment to grow over time. This can be more tax-efficient in some cases, as well as being more practical if you plan to reinvest the dividends in the same ETF anyway.
Yuh tip: To find out how your ETF handles dividends, look under ‘dividend policy’, ‘distribution method’ or ‘yield information’ in the factsheet.
Beware of currency sneakiness!
Every ETF has a fund currency, which is the currency used to calculate its net asset value (NAV). This is different from the trading currency, which is used to buy and sell the ETF on an exchange.
For example, an ETF might be denominated in USD but available for purchase in CHF. It’s the currencies of the underlying assets that determine your currency risk, not the fund currency.
Example: A ‘world’ ETF might be listed in CHF, but if it primarily holds US stocks, your actual exposure is to USD.
Yuh tip: Factsheets show both the trading and fund currencies, so make sure you check both before buying.
For example, an ETF might be denominated in USD but available for purchase in CHF. It’s the currencies of the underlying assets that determine your currency risk, not the fund currency.
Example: A ‘world’ ETF might be listed in CHF, but if it primarily holds US stocks, your actual exposure is to USD.
Yuh tip: Factsheets show both the trading and fund currencies, so make sure you check both before buying.
Asset allocation: What’s inside the ETF really matters
Just because an ETF is labelled ‘world’ doesn’t mean it actually covers the whole world. Many global ETFs are heavily weighted towards the US and other large developed economies.
For example, the MSCI World ETF consists mostly of stocks from North America and Europe, with a strong concentration of US tech giants.
Key points to check in the factsheet:
Top holdings: The largest stocks in the ETF – these will have the greatest impact on its performance.
Sector allocation: Some ETFs are surprisingly concentrated in specific industries (e.g. many large ETFs have tech-heavy allocations).
Geographical exposure: How diversified is the ETF across different countries and regions?
Yuh tip: If you think you’re investing globally, but 70% of your ETF is US stocks, you may want to reconsider your strategy.
Performance & risk: Dig into the details
Tracking difference, volatility, and tracking error all reveal how well the ETF is managed and how risky it might be.
Tracking difference: This shows how closely the ETF follows its index. A significant gap could indicate higher costs or inefficient management.
Volatility: Shows how much the ETF’s price fluctuates. Higher volatility means higher risk.
Tracking error: This measures how precisely the ETF mimics its index. Lower is better.
You will often see performance graphs that compare the ETF to its benchmark index. Bear in mind that past performance is not a guarantee of future results, but it can provide insight into consistency and reliability.
The factsheet also contains a section on risk with information about potential investment risks, such as:
Tracking difference: This shows how closely the ETF follows its index. A significant gap could indicate higher costs or inefficient management.
Volatility: Shows how much the ETF’s price fluctuates. Higher volatility means higher risk.
Tracking error: This measures how precisely the ETF mimics its index. Lower is better.
You will often see performance graphs that compare the ETF to its benchmark index. Bear in mind that past performance is not a guarantee of future results, but it can provide insight into consistency and reliability.
The factsheet also contains a section on risk with information about potential investment risks, such as:
- Currency risk
- Market fluctuations
- Liquidity risk
- Counterparty risk (if applicable)
- Potential fund closure risk
Special clues in bond ETFs
Bond ETFs operate differently. Look out for:
Modified duration: how sensitive the ETF is to interest rate changes
Average yield: the expected return based on current bond prices
Credit ratings: a breakdown of the bond issuers’ credit quality
Maturity distribution: the mix of short-, medium- and long-term bonds
Unlike stock ETFs, bond ETFs are more sensitive to interest rates – when rates rise, bond prices usually fall.
Yuh tip: Bond ETF factsheets also include issuer ratings and a breakdown of bonds by remaining maturity period, typically displayed in pie or bar charts.
Modified duration: how sensitive the ETF is to interest rate changes
Average yield: the expected return based on current bond prices
Credit ratings: a breakdown of the bond issuers’ credit quality
Maturity distribution: the mix of short-, medium- and long-term bonds
Unlike stock ETFs, bond ETFs are more sensitive to interest rates – when rates rise, bond prices usually fall.
Yuh tip: Bond ETF factsheets also include issuer ratings and a breakdown of bonds by remaining maturity period, typically displayed in pie or bar charts.
Trading and liquidity: Where you buy the ETF matters
The factsheet will also list the exchanges on which the ETF is traded. If you’re investing from Switzerland, it might be more cost-effective to buy on a Swiss exchange (SIX) than on foreign exchanges, where fees can be higher.
Yuh tip: Check the trading information section to see where the ETF is listed and whether this aligns with your preferred broker.
Yuh tip: Check the trading information section to see where the ETF is listed and whether this aligns with your preferred broker.
ETF factsheets: The fine print every investor should read
ETF factsheets may not be page-turners like Harry Potter novels, but they are the real magic behind smart investing once you learn how to read them.
Decode them properly, and you’ll:
✅ Spot hidden fees and compare costs (TER, tracking difference)
✅ Avoid misleading ETF names
✅ Ensure proper diversification across sectors and regions
✅ Choose the right dividend distribution method for your needs
✅ Understand the risks before investing
Don’t rush things! Before investing in an ETF, take a few minutes to check its factsheet. This extra step could prevent you from investing in something that doesn’t align with your strategy.
Decode them properly, and you’ll:
✅ Spot hidden fees and compare costs (TER, tracking difference)
✅ Avoid misleading ETF names
✅ Ensure proper diversification across sectors and regions
✅ Choose the right dividend distribution method for your needs
✅ Understand the risks before investing
Don’t rush things! Before investing in an ETF, take a few minutes to check its factsheet. This extra step could prevent you from investing in something that doesn’t align with your strategy.
ETF factsheets may not be page-turners like Harry Potter novels, but they are the real magic behind smart investing once you learn how to read them.
Find the right ETF for your goals
Don’t be fooled by fancy ETF names – delve into the factsheet and invest with clarity. The Yuh app makes this easy: just tap on any ETF and scroll to find the fund’s factsheet. Compare costs (TER), check the top holdings and make sure that the strategy aligns with your plan, whether you’re going global, going green, or just getting started. Knowing how to read these handy cheat sheets can prevent you from making big investment mistakes.