Module 2: Evaluating ETFs

This CFA Institute Research Foundation module follows A Comprehensive Guide to ETFs (2nd edition), Module 1: ETF Features and Evolving Landscape (2025). A third module is expected in 2027. These three modules update A Comprehensive Guide to Exchange-Traded Funds (ETFs), first released in 2015, to reflect the rapid growth and evolution of the ETF industry. They seek to provide investors and financial professionals with the knowledge needed to understand how ETFs work, why they have been so widely adopted, and how to use them effectively in today’s dynamic markets.

Module 1 is an essential guide for understanding the features, structure, competitive landscape, use cases, and ongoing evolution of ETFs. Module 2 takes a deep dive into ETF due diligence, providing both a framework and case studies. ETFs are analyzed based on investor objectives (return, income, risk, horizon) and the Efficiency, Tradability, and Fit (E-T-F) framework.

Module 2 has two main sections:

• The Elements of ETF Due Diligence: Efficiency, Tradability, and Fit
  • Efficiency: evaluating ETF holding costs and risks
  • Tradability: assessing ETF liquidity in primary and secondary markets
  • Fit: selecting the appropriate ETF
    • Fund classification and screening
    • Benchmarking
    • Matching ETF economic exposure to the investment hypothesis

• Conducting ETF Due Diligence for Investor Personas

  • Mid-career professional retirement saver
  • Registered investment adviser
  • Global multi-family office
  • Foundation
  • Multi-strategy hedge fund
  • Next-generation retail investor

  The case studies in the second section apply the principles of ETF due diligence in the context of specific investor objectives for a wide range of investor types that regularly use ETFs in their investment process. Each one introduces an invented investor persona, presents a portfolio need, searches for candidate ETFs, and systematically evaluates the choices. (These are illustrative and do not represent recommendations or investment advice. The search process and ETF evaluation use FactSet’s ETF data as of 31 December 2025.)

  Whether you’re a long-term investor building a retirement portfolio, an adviser managing client assets, or a finance professional analyzing markets, this comprehensive resource will equip you with the understanding needed to make systematic, informed decisions in the ETF space.