Tips on Ranking ETFs

ETFs are one way to access financial entities on the stock market.stock market analysis screenshot image by .shock from Fotolia.com

Exchange-traded funds (ETFs) track a collection of stocks or a stock market index. While they trade exactly like corporate shares of stock, they do not offer the benefits of actual ownership in a corporation. Instead, they offer investors exposure to foreign markets or specific sectors and commodities in a single, simple financial product. When choosing which ETFs to buy, there are different ways you may rank them for informing your decisions.

Compare Sector Charts

A simple tip for ranking sector ETFs is to study a relative performance sector chart. While there are hundreds of ETFs available in the stock market, the Select Sector SPDR Trust offers some of the most popular ETFs for investment in specific sectors as of 2010. According to Stock Encyclopedia, these ETFs are among the Top 100 most active ETFs in the industry. The Select Sector SPDR website offers tools to assist in ranking these ETFs. A chart of relative performance between the funds quickly displays a visual representation of these ETFs' prices in relation to one another. The tool makes it easy to rank the ETFs by capital gains over a set time, from one week to two years. In so doing, you also see which sectors of the stock market performed the best.

Rank ETFs by the activity of their moving averages. Moving averages are technical tools used in chart analysis. A moving average simply averages together the prices over a set period of days and plots this result as a point on the price chart. A line connecting these points creates the moving average. When two moving averages of different durations cross one another, this often suggests a change in trend. The website ETFtable offers a quick way to rank ETFs based on moving average crossovers. Click on any of the crossover columns on the right of the Web page to rank the ETF list by this parameter. Quickly identify those ETFs in the strongest trends based on this form of analysis.

According to Larry Connors, an author of ETF trading books and owner of the Trading Markets website, you can rank ETFs based on the type of equity they track. He identifies ETFs that track foreign stock market indices as the least volatile and most easily predictable of funds. If you have a choice between several ETFs that offer similar opportunities, consider prioritizing those based on foreign markets, he says. Second to these are the sector funds. Some of the most volatile ETFs are the commodity funds that may create more losing trades.