ETF základy
How to Identify a Quality ETF: A Pre-Purchase Checklist
Key takeaways
- Before buying an ETF always check: domicile (prefer IE), TER (lower is better), AUM (min. EUR 200 million), tracking difference, and replication type.
- Accumulating ETFs reinvest dividends automatically — for long-term portfolio building in the Czech Republic they are generally more tax-efficient.
- KIID (Key Investor Information Document) is the mandatory document for every UCITS ETF — read it before you buy.
- Also watch the spread: buy ETFs during the main part of the trading day when liquidity is highest and the spread is narrowest.
- The checklist takes 10 minutes but can save thousands of Czech crowns per year in unnecessary costs.
A quality ETF can be identified by seven easily verifiable criteria: domicile, TER, AUM, tracking difference, replication type, dividend treatment, and exchange liquidity.
1. Domicile: look for "IE" in the ISIN
For a Czech investor, the ideal ETF has Irish domicile (ISIN starting with IE). Ireland has a tax treaty with the US — dividends from US stocks are taxed at 15% at source instead of 30%. The article why UCITS ETFs with Irish domicile explains the advantage in detail.
2. TER: lower is better
For global equity ETFs look for a TER below 0.25%. Anything above 0.50% for a passive index fund is expensive. A detailed explanation of TER is in the dedicated article.
3. AUM: min. EUR 200–500 million
A larger fund has lower closure risk, a narrower spread, and generally lower real costs. Below EUR 100 million, exercise caution.
4. Tracking difference: the real cost
Compare the fund's return against the index return for the past 1–3 years. Good TD is close to zero or negative (fund outperformed the index). Find comparisons on JustETF.
5. Replication type: physical is simpler for starters
Physical or optimized replication is more straightforward, with no counterparty risk. Synthetic replication is not bad, but adds a layer of complexity. More in the article physical vs. synthetic replication.
6. Accumulating vs. distributing share class
For long-term portfolio building without active management, accumulating ETFs are preferable — dividends are reinvested automatically without triggering a dividend tax event along the way. Detailed comparison in the article accumulating vs. distributing ETF.
- Accumulating ETF: "Acc" or "C" (accumulating) in the name.
- Distributing ETF: "Dist" or "D" (distributing) in the name.
7. Liquidity and spread
Buy in the middle of the trading day (not right at open or close), when the spread is narrowest. For large ETFs the impact is small, but for smaller funds it can mean a difference of tenths of a percent. More on spread in the article what is the spread on an ETF.
This article is educational in nature and does not constitute investment advice.
FAQ
How do I choose an ETF step by step?
Start with domicile (prefer IE), check TER (below 0.25% for global funds), AUM (min. EUR 200 million), tracking difference (close to zero), replication type, and whether the fund is accumulating. Work through the entire process on JustETF.
Where do I find the KIID for an ETF?
On the fund provider's website (iShares, Vanguard, Xtrackers, etc.) or in the documents section on JustETF. The KIID is a mandatory document for every UCITS fund — a two-page summary of key information.
Do I need to check all the criteria?
For a well-informed decision, yes. It takes just 10 minutes on JustETF. The biggest mistake is choosing an ETF purely on last year's performance — that is exactly the performance chasing that produces lower results over time.
Are ETFs with high AUM always a better choice?
AUM reduces closure risk and improves liquidity, but says nothing by itself about the strategy or performance. Always evaluate AUM together with TER, TD, and the replication method — never in isolation.