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Rob Carrick

A milestone was just reached in ETF-land – there are now 400 different funds to choose from on the TSX.

Hold up, that was accurate information through early October on Globeinvestor.com. Month by month, even week by week, the number of exchange-traded funds targeted at Canadian investors keeps rising. Future growth is assured if you take a peek at the many preliminary prospectuses filed by various ETF companies on the Sedar.com website (choose a search for investment fund documents, and then select the prospectus option). The proliferation of ETFs is all the more overwhelming when you include the U.S.-listed funds that are easily available to Canadian investors. Globeinvestor shows 1,256 ETFs that call the New York Stock Exchange home.

If you research all these ETFs individually, you run the risk of having your investment dollars sitting in do-nothing cash for an extended period of time. Instead, try these ideas for narrowing the ETF field:

Indexes:
Look for ETFs that track well-established indexes rather than funds based on indexes created solely as a vehicle for developing an ETF.

Fees:
You'll drastically narrow the field by looking for funds with management expense ratios of 0.30 per cent or less for bonds, Canadian and U.S. equities; you may have to go up to 0.5 or so for international.

Track record:
Limit the field by looking only at ETFs that were around for the market crash of 2008-09 – that's the best stress test you can find for an investment; monitor new products that look promising with a Globeinvestor watchlist, but let other investors be test pilots.

Asset class:
Stick to Canadian bonds, Canadian, U.S. and international stocks for the core of your portfolio and consider adding niche products later as you become more comfortable with ETFs.

Liquidity:
Look at funds that trade in the tens of thousands of shares at least per day; some ETFs have days where they don't trade at all.

Focus:
Look for broad exposure to an asset class like bonds or Canadian equities rather than going with the niche sector funds that have proliferated recently; think corporate and government bonds rather than floating rate bond or senior loan ETFs.

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