1. Start with what you’re trying to achieve

It helps to start with the role you want the investment to play in your portfolio.

Are you investing for long-term capital growth, income, diversification or a combination of these? What is your investment time horizon and how comfortable are you with investment risk?

From there, consider the type of exposure that fits that objective. Different ETFs provide exposure to different asset classes and investment strategies. Investors commonly research how various exposures align with their own objectives, circumstances and risk profile.

Starting with the investment objective can help narrow a large universe of ETFs into a much more manageable shortlist.
 

2. Look under the hood

ETFs with similar names are not necessarily interchangeable.

Once you’ve identified the exposure you want, consider what the ETF owns and how its portfolio is constructed. Look at its largest holdings, sector and geographic exposures, and the concentration of the portfolio.

For an index-tracking ETF, understanding the index methodology is particularly important. Is the index weighted by market capitalisation, equally weighted or does it select and weight investments using another set of rules?

These decisions can materially change the portfolio. For example, a market-capitalisation-weighted Australian sharemarket ETF will naturally have larger allocations to the biggest companies and sectors in the market.
 

3. Consider what you already own

Before adding another ETF, it is worth looking at the investments already in your portfolio.

Adding more funds doesn’t automatically make a portfolio more diversified, particularly if several ETFs hold many of the same companies, sectors or markets. Two funds may have different names or investment themes but still have significant overlap in their underlying holdings.

This is where portfolio construction becomes important.

Portfolio construction approaches vary considerably between investors. Some market participants use broad-market ETFs, while others use more targeted exposures.

Other investors may choose to hold more targeted exposures focused on sectors, regions or themes.

There is no single approach that will suit every investor, but the key question is whether a new ETF adds something useful to the portfolio or simply duplicates exposure you already have.

Understanding how each investment fits together can be just as important as assessing the ETF itself.
 

4. Consider costs, tracking and liquidity

Fees are among of the easiest features of an ETF to assess, and they are an important consideration because investment costs reduce the return ultimately received by investors.

Fees are one factor investors may consider when comparing ETFs, alongside investment objectives, strategy, risks and other characteristics. However, the lowest management fee doesn’t automatically make an ETF the most suitable choice. Fees need to be considered alongside factors such as the exposure an ETF provides, how its portfolio is constructed and how effectively it delivers on its investment objective.

For ETFs designed to track an index, investors can also consider how effectively the fund has historically delivered the performance of its benchmark after fees and costs. Measures such as tracking difference and tracking error can provide useful information about how closely an ETF has followed its index over time.

Liquidity is another consideration. Unlike individual company shares, the liquidity of an ETF is not determined solely by how many ETF units change hands on the exchange.

ETFs are open-ended investment funds, meaning units can generally be created or redeemed in response to investor demand. As a result, the liquidity of the underlying investments held by the ETF is an important part of the picture.

Investors can also consider the bid-offer spread, which is the difference between the price at which ETF units can be bought and sold. Bid-offer spreads are one measure commonly used when assessing trading costs.

Fund size, or assets under management, can provide useful context, but it should not be viewed as a standalone measure of an ETF’s quality or liquidity.
 

5. Understand the risks

Finally, consider the risks associated with an ETF and how they fit with the rest of your portfolio.

For example, with an international equities ETF, investors should understand whether their returns will be exposed to movements in foreign currencies or whether the fund uses currency hedging.

Other considerations may include concentration risk, market risk, sector or country exposure and risks specific to the investment strategy.

An ETF’s Product Disclosure Statement can be an important resource here. It explains a fund’s investment objective, strategy, fees and costs and key risks.

The Australian ETF market has come a long way in 25 years, and investors today have more choice than ever before. But as the ETF market has expanded, investors have access to a range of resources and information to help them better understand available options.
 

From ASX

For more information on selecting an ETF, watch the ASX ETF Insights video in ASX Content On-Demand.

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[1] ASX Investment Products Monthly Report. As at 31 July 2026.