How we pick ’em

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   By Guest Blogger Ryan Lewenza

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We’re often asked how we select the exchange traded funds (ETFs) that ultimately make it into client portfolios. It’s a rigorous process, so today I’ll walk through our approach and the key criteria we use when evaluating ETFs.

One of the main reasons we favour ETFs is that there are a lot to choose from. The universe has expanded dramatically in recent years, driven by investors shifting away from higher-cost mutual funds toward more cost-efficient ETF structures. To put that in perspective, the total number of ETFs globally has grown from just 548 in 2006 to more than 16,000 today.

So how do we narrow that universe down?

Total outstanding ETFs worldwide

Source: Bloomberg, Turner Investments

First, you need to determine the exposure you’re actually looking for. We’re strong believers in maintaining balanced, globally diversified portfolios, so that means combining both fixed income and equity ETFs across different geographies, sectors, and themes.

For example, if we’re becoming more constructive on emerging markets, we’ll start by casting a wide net across the available ETFs in that space. That initial screen can be straightforward – using research tools, screeners, or even a simple Google/AI search to identify the leading ETFs within a given category.

Second, once we’ve defined the specific exposure – whether it’s small caps, utilities, or emerging market debt – and created a shortlist of candidates, we move on to the quantitative screen, where we evaluate a range of key variables:

Fees/expense ratios: We’re highly fee-conscious and generally favour the lowest-cost options. That said, cost isn’t the only consideration – performance consistency and tracking error matter as well. In some cases, a slightly higher-cost ETF is justified if it offers a clear advantage in how it captures the opportunity.

Performance and volatility: We assess ETFs based on their historical returns over 1-, 3-, and 5-year periods, as well as since inception, in conjunction with their risk characteristics. Volatility analysis includes 1-year standard deviation and maximum drawdowns, providing insight into how the ETF behaves during market downturns.

Liquidity and trading characteristics: We assess average daily volume, overall liquidity, and how long the ETF has been trading. High liquidity is important as it allows us to scale positions up or down efficiently without materially impacting price.

Bid/ask spread: Closely related to liquidity is the bid/ask spread which is the difference between what buyers are willing to pay and what sellers are asking. Highly liquid ETFs tend to have very tight spreads (often just a penny or two), which improves execution. The tighter the spread, the better the price you can expect when entering or exiting a position.

Tracking error: We evaluate how closely the ETF tracks its underlying index. Consistent, low tracking error is critical to ensure we’re getting the exposure we expect.

Tax efficiency: ETFs are generally tax-efficient by structure, but we still assess potential distributions and overall tax implications to optimize after-tax returns.

Selecting ETFs for client portfolios requires a disciplined, repeatable process. We start by identifying the right exposure, then apply a rigorous screen across fees, performance, liquidity, and tracking accuracy so each ETF plays its defined role within the portfolio.

Our focus isn’t just on low-cost options, but on building efficient, diversified portfolios aligned with our investment views – helping us consistently deliver strong outcomes for clients.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

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Source: https://www.greaterfool.ca/2026/06/27/how-we-pick-em/