Choosing an ETF: what you should look out for

Over 2,000 ETFs on the Swiss stock exchange SIX Swiss Exchange alone – how are you supposed to find the right one? The good news: with a few clear criteria, the range shrinks to a manageable selection. The even better news: for most investors, a single ETF is enough. In this seventh lesson of our finance guide, you’ll find out which criteria really count, how to clear a systematic path through the ETF jungle and how to choose the ETF that’s right for you.

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Not all ETFs are created equal

In Lesson 6, you learned what ETFs are and why they are the ideal investment vehicle for you. But not all ETFs are created equal. The universe is huge – and covers far more than just shares. On the Swiss stock exchange SIX alone, you’ll find over 2,000 ETFs on a wide range of asset classes: shares, bonds, real estate, commodities or even cryptocurrencies. On top of that, there are ETFs that focus on specific sectors, themes, strategies or factors.

When building your portfolio, it is therefore crucial to choose the right category – before you look at individual products.

Core ETFs as the heart of your portfolio

This guide is about building wealth over the long term. Broadly diversified equity ETFs are best suited to this – specifically, those that track a global index weighted by market capitalisation. That’s exactly what we do too.

These so-called core or “bread-and-butter” ETFs invest in thousands of companies and form the foundation of a solid global portfolio. Some providers even label these products explicitly: iShares, for example, uses the label “Core” for its standard products, as opposed to “Edge” for specialised and thematic ETFs.

In our ETF comparison Best ETFs in Switzerland and globally, we focus exclusively on core products like these – and they are also the focus of this lesson.

Specialist ETFs as satellites

There are also ETFs that invest specifically in individual sectors (e.g. technology), factors (e.g. small caps, value), strategies (e.g. dividends) or themes (e.g. clean energy, artificial intelligence). These products are narrower, less diversified and often more expensive – but they can be interesting as a targeted addition.

This is where the core-satellite strategy comes in, which we introduced in Lesson 3: the core of your portfolio consists of one or a few broadly diversified ETFs. The satellites are optional additions that let you deliberately set accents – for example on a particular region, a theme or an asset class such as real estate. If you’re interested in factor-based approaches such as small caps or value, you’ll find an in-depth analysis in our article Is factor investing worth it?

Important: the satellites are a nice-to-have, not a must. If you want to save yourself the effort, a pure core portfolio will serve you just as well – often even better, because it is simpler and cheaper.

In the following chapters, we focus on the core: which index should you choose, and which criteria can you use to pick the right ETF?

First, find the right index

Choosing the index is the most important decision – ETF criteria such as TER, replication or fund size come afterwards. Or, to put it figuratively: you choose the index like a flat – the ETF criteria are the furnishings. So when choosing an ETF: start with the index, not the product.

As you learned in Lesson 3, broad diversification is the key to a robust portfolio. In concrete terms: indices that cover entire regions or the whole world are preferable to a narrow country or sector index.

One ETF is enough – the simplest solution

If you want to keep things as simple as possible, choose a single global ETF that covers both developed and emerging markets. Two indices are suitable for this:

The FTSE All-World comprises over 4,200 large and mid-sized companies from around 50 countries. Its MSCI counterpart, the MSCI ACWI (All Country World Index), covers a similarly broad market with around 2,500 positions. The even broader MSCI ACWI IMI also includes smaller companies (small caps) and has over 8,000 positions.

With a single ETF on one of these indices, you have a complete, market-cap-weighted global portfolio – without having to worry about the weighting between regions. It doesn’t get any simpler.

Two ETFs – developed world and emerging markets separately

If you want to control the weighting between developed and emerging markets yourself, combine two ETFs: one on the developed world (e.g. MSCI World or FTSE Developed World) and one on emerging markets (e.g. MSCI Emerging Markets or FTSE Emerging Markets).

Regional split – for more control

If you want to reduce the US dominance in the MSCI World – US shares currently make up around 70% of it – you can split the developed world into individual regions: North America, Europe and Asia-Pacific. As there is no single ETF available for the Asia-Pacific region, you need two here: one for Asia-Pacific ex Japan and one for Japan. Together with an emerging markets ETF, this gives you a global portfolio of five to six ETFs – depending on whether you also want to add a Switzerland ETF.

This variant gives you more control over the regional weighting, but also means more work when rebalancing (see Lesson 5).

MSCI or FTSE – but please don’t mix them 

The two big index providers – MSCI (USA) and FTSE Russell (UK) – cover the global stock markets differently. Specifically, they don’t always classify individual countries in the same way. FTSE, for example, counts South Korea and Poland as developed markets, while MSCI (still) lists both countries as emerging markets.

That sounds like a detail, but it has practical consequences: if you combine an ETF on the FTSE Developed World with an ETF on the MSCI Emerging Markets, you would have South Korea and Poland in your portfolio twice. Conversely, with the combination MSCI World + FTSE Emerging Markets, these countries would be missing completely.

“Choose one index provider – MSCI or FTSE – and stick with it.”

The simple rule: stick with one index provider. If you use MSCI for the developed world, choose MSCI for emerging markets too – and vice versa. With a single global ETF, the question doesn’t arise anyway. You’ll find a detailed comparison of the two providers’ country classifications in our ETF comparison.

Home bias: why Swiss indices alone aren’t enough

Some people instinctively bet on their home stock market. But the best-known Swiss index, the SMI, contains only 20 stocks – Nestlé, Roche and Novartis together account for around 45%. That is the opposite of diversification. The broader SPI (Swiss Performance Index), with over 200 stocks, is better, but remains a pure country index. What’s more, neither the SMI nor the SPI is UCITS-compliant – the product range and competition are smaller than for global indices.

Swiss indices are therefore not suitable as the sole basis of a portfolio. Swiss shares already make up around 2% of a global ETF such as the FTSE All-World – so you’re already invested. If you still want a Swiss finish, for example to deliberately increase the share of Swiss francs in your portfolio, you can add a Switzerland ETF as a satellite. But that is then a deliberate overweighting – and not a must. You’ll find specific products for this in our ETF comparison.

In Lesson 3, we explained why a strong home bias is one of the most common and most expensive investing mistakes.

Choosing the right ETF: the key criteria

Once you’ve decided on an index, it’s time to choose a specific product. After all, there are often dozens of ETFs from different providers on the same index. The good news: with a few clear criteria, you can narrow the field systematically when selecting an ETF. In our ETF comparison Best ETFs in Switzerland and globally, we apply a strict, multi-stage selection process – in the end, only a handful of products make it to the final. The key criteria at a glance:

Costs (TER)

The total expense ratio (TER) states the ongoing annual costs of an ETF. It is charged directly to the fund’s assets and continuously reduces your return. The lower the TER, the better. For broadly diversified global ETFs, you typically pay between 0.10% and 0.20% per year today. ETFs with a TER above 0.25% are hardly justifiable for broad market indices any more.

Tracking difference – the underrated metric

Even more meaningful than the TER is the tracking difference. It measures how much an ETF’s actual performance deviates from its benchmark index – and thus shows the full picture: including additional income, for example from securities lending, which can partly or fully offset the ongoing costs. A negative tracking difference means that the ETF slightly beat its index despite its costs.

You often won’t find the tracking difference directly on the providers’ factsheets. But you can work it out by comparing the fund’s performance with the index performance. Alternatively, the platform trackingdifferences.com is a good resource. As a rule of thumb, the tracking difference should be in the region of the TER – or even below it. If it is significantly higher, this points to hidden costs.

Fund size

Although the ETF market is growing rapidly, ETFs are regularly closed or merged. Your invested money isn’t lost in the process – it is protected as segregated assets – but the procedure is cumbersome and can incur costs. The main argument for a large fund size is a different one, though: large ETFs are traded more often, which leads to tighter spreads (the difference between the buying and selling price) and therefore lower trading costs every time you buy or sell.

If you want to play it safe, you should choose an established ETF – with a large fund size. In our ETF comparison, we require a minimum fund size of CHF 500 million.

Replication method

Basically, you have two options: physically replicating ETFs actually buy the shares contained in the index – either all of them or an optimised selection (sampling). Synthetic ETFs, on the other hand, replicate the index via a swap with a counterparty, which carries an additional risk. Synthetic ETFs are being phased out; we avoid them.

Launch date

An ETF should have been on the market for at least five years. Only then can you make meaningful performance comparisons and assess the tracking difference over a longer period. A newly launched ETF may be cheap – but whether it keeps its promises over the long term only becomes clear after a few years.

Fund domicile

An ETF’s domicile has tax consequences. For people based in Switzerland, ETFs domiciled in Ireland are generally the most tax-efficient, followed by Luxembourg. The reason lies in the double taxation agreements, which affect the foreign withholding tax burden. In practice, the domicile of the common ETFs on MSCI or FTSE indices is almost always Ireland or Luxembourg – so you rarely need to think about it actively.

You’ll find more in-depth information in our article ETF taxes in Switzerland: optimise your portfolio with these 5 tax-saving tips.

What an ETF’s name tells you

ETF names look cryptic at first glance, but they follow a clear pattern. The following graphic shows what the individual components stand for, using the example of the “Vanguard FTSE All-World UCITS ETF (USD) Accumulating”:

You’ll find a detailed overview of all common abbreviations in our article Understanding ETF abbreviations: 1C, UCITS, MSCI & Co. explained simply.

The currency question

Currency is a topic that regularly raises questions in our community – understandably so, because there are no fewer than three different currency levels:

The fund currency is the ETF’s accounting currency. It often appears in the name (e.g. “USD” or “CHF”). The fund currency is cosmetic: whether the ETF calculates internally in USD or CHF makes no difference to your return. There is one practical difference with distributing ETFs, however: there, the fund currency determines the currency in which dividends are paid out.

The trading currency is the currency in which you buy and sell the ETF on the stock exchange. Many ETFs can be traded on SIX in both CHF and USD. If you buy in CHF, you save yourself the currency exchange fees at your broker.

The security currency is the currency in which the individual shares in the ETF are quoted – US dollars for Apple, euros for ASML, yen for Toyota. You can’t influence this level, and this is exactly where the much-discussed currency risk lies: if the dollar loses value against the franc, the franc value of your US positions falls – even if the share prices in dollars stay stable. Important: this risk is linked exclusively to the security currency, not to the fund or trading currency.

Why currency hedging is unnecessary

Some ETFs offer currency hedging. That sounds like less risk, but it comes at a price: in addition to an often higher TER, there are implicit costs resulting from the interest rate differential between the currencies. For the franc against the dollar, these costs can add up considerably over the years.

For people with a long-term investment horizon, currency hedging generally doesn’t make sense. Experience shows that over periods of ten years or more, currency fluctuations largely even out. You pay the hedging costs every year, however – whether the franc rises, falls or moves sideways.

Our advice: skip currency hedging and save yourself the costs.

Distributing or accumulating?

When it comes to what happens to the income, you have two options:

Distributing ETFs regularly pay out the dividends they collect to your account – typically quarterly or half-yearly. You see the money come in and can decide freely what to do with it.

Accumulating ETFs automatically reinvest the dividends in the fund. The money stays in the ETF and keeps working straight away. You don’t see any payment come in, but the ETF’s price rises accordingly.

For building wealth over the long term, we prefer accumulating ETFs. The reason: automatic reinvestment makes optimal use of the compound interest effect – without you having to do anything. You also save the transaction costs that arise when you reinvest distributions manually.

Distributing ETFs can still make perfect sense, though – for example if you want regular income or want to use the distributions specifically for rebalancing (see Lesson 5).

In Switzerland, the choice makes no difference for tax purposes: dividends are subject to income tax in both cases – regardless of whether they are paid out or reinvested.

Investing sustainably with ETFs

If sustainability matters to you when investing, the ESG aspect (environmental, social, governance) also plays a role in the question “which ETF is right for me?”. There is now a growing range of ETFs that screen companies according to environmental, social and corporate ethics standards.

However, the ESG market is hard to navigate: there is no uniform definition of “sustainable”, and the differences between providers are considerable. Some ESG ETFs only exclude the most obvious offenders (e.g. arms manufacturers, coal), while others screen much more strictly and noticeably shrink the investment universe – with corresponding effects on diversification.

In our guide, we focus on standard ETFs without ESG filters, as these are more broadly diversified and usually cheaper. If you’re interested in sustainable ETFs, you’ll find a detailed analysis in our article Green stocks: 40 ETFs compared.

Which ETF is right for me?

Let’s sum up. If you want to choose an ETF that fits your global portfolio, these are the points that count most:

1. Index first: choose a broadly diversified, market-cap-weighted equity index. For most investors, a single global ETF is the best solution.
2. Keep costs low: look for a TER of no more than 0.25% and a tracking difference as close to zero as possible – or even negative.
3. Size matters: a fund size of CHF 500 million or more provides security and liquidity.
4. Physical replication: avoid synthetic ETFs.
5. No currency hedging: in the long run, hedged products cost more than they deliver.
6. Don’t mix index providers: either MSCI or FTSE – consistently.

This gives you the tools to find the right ETF in the huge range on SIX. In our detailed ETF comparison Best ETFs in Switzerland and globally, we did exactly that: in a strict, multi-stage selection process, we combed through the entire range and picked the best products.

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Conclusion

Choosing the ETF that’s right for you is no rocket science – as long as you know what matters. The index determines where your money goes; the product criteria make sure as little of it as possible gets lost along the way. And for the simplest option, a single, broadly diversified ETF covering the whole world is enough.

In Lesson 8 things get practical: we show you step by step how to buy your first ETF through an online broker – from opening a securities account to placing your first order.

You can find an overview of all the lessons here: Learn to invest – in eight lessons.

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Updates

15 June 2026: Article adjusted in places.

24 April 2026: Article completely revised and updated.

Disclaimer

Disclaimer: Investing involves the risk of loss. You have to decide for yourself whether or not you want to bear these risks.

Errors excepted: We have written this article on choosing the right ETF to the best of our knowledge and belief. Our aim is to give you, as a private investor, information on finance that is as objective and meaningful as possible. If we have nevertheless made mistakes, overlooked important aspects and/or if information is no longer up to date, we would be grateful if you let us know.