How to Decide Which ETFs Are Best for You

With so many new exchange-traded funds hitting the market, it's becoming tougher to compare them.

A small group of Web sites with screening tools and educational resources are vying to become the go-to site for investors. To date, none offers true one-stop shopping. Still, when used together, they can help you decide which ETFs are best for your portfolio.

ETFguide, an independent online resource, launched a redesign of its Web site Monday with a bigger focus on education along with two new proprietary functions that classify funds and let investors screen for funds that meet specific criteria.

The expanded education section compares ETFs to individual stocks, mutual funds and closed-end funds as well as describing advanced strategies in a simple, easy-to-understand format. There's also a subscription-based area with six model ETF portfolios. And ETFguide produces original articles on industry developments, including the launch of new ETFs. One of its unique features is a quarterly survey of expense ratios.

The first new tool is really a system for classifying funds. Essentially an adaptation of the classic mutual fund style boxes, it looks at factors relevant to only ETFs, which are baskets of securities that trade on an exchange.

For example, instead of measuring a fund's investment style in terms of the asset class or size of company it holds, ETFguide classifies funds according to the way their benchmark indices are weighted -- by market-cap, fundamental criteria or fixed weighting.

This make a lot of sense. Index weighting and construction have been hot topics in the ETF industry for at least two years. ETFs are passively managed, so benchmark weighting and construction are among the few ways they can differentiate themselves.

ETFguide's other new function is a tool that lets investors search for ETFs using between one to four criteria: asset class, the fund provider, investment category and index-weighting style. It also lets you easily compare two funds side by side.

One tool ETF Guide needs to add to its arsenal is a way to compare investment returns.

Nuveen Investments' (NUV Quote) ETF Connect has an education section that provides a broad overview of ETFs. It has some very good tools for comparing fund returns. However, this data is updated once a month at the end of the month. That could be a drawback when the market takes a sudden, sharp turn, as it has frequently this year.

The site does have some other interesting metrics such as data on dividend distributions and whether a fund's shares trade at a premium or discount to the value of its holdings. But half of the site is focused on closed-end funds, which Nuveen also considers to be ETFs because they trade on an exchange.

The Journal of Indexes' Web site offers timely news and features on the industry. It also has the best tool for comparing 44 fund metrics, including historical returns, as well as alpha, beta and Sharpe Ratio. Unfortunately, that's the site's only tool. In addition, while ETFs get a lot of space on the site, the majority of IndexUniverse is focused on the indexing industry.

The American Stock Exchange has a Web site that offers a detailed education section and also reports on dividend distributions and whether the fund trades at a premium or discount. It also tracks many of the indexes that ETFs are based on. However, the Amex doesn't provide information for ETFs that trade on other exchanges.

Rydex Investments' ETF Essentials Web site offers information on how ETFs work in a simple, easy-to-understand format. While Rydex provides snapshots of its own funds, with performance returns, holdings, and taxable distributions, it doesn't do have any functions that allow you to compare funds.But it doesn't have any functions that allow you to compare funds.

Exchangetradedfunds.com, which sponsors the Global ETF Awards, lists every ETF that trades on a foreign exchange. The site provides a lot of information that is more to financial professionals than retail investors. But for people in the industry, it offers many resources, such as conferences and lists of index publishers, custodians, distributors and law firms specializing in ETFs.