ETF

How do you choose an ETF? 7 criteria to understand

When choosing an ETF, you can compare seven key characteristics: investment universe, risk, costs, diversification, geographic exposure, distribution type and investment strategy. Which characteristics matter most depends on the criteria you want to use.

Wizer Invest · 16 October 2026 · 5 min read

There are many different ETFs. Some invest in thousands of companies around the world. Others focus on particular countries, sectors or investment strategies.

How can you tell them apart?

At a glance: When choosing an ETF, you can compare seven key characteristics: investment universe, risk, costs, diversification, geographic exposure, distribution type and investment strategy. Which characteristics matter most depends on the criteria you want to use.

An ETF with low costs is not necessarily more diversified than a more expensive ETF. And an ETF with World in its name does not necessarily invest in every market around the world.

It is useful to look beyond the fund's name and past returns.

What is an ETF?

ETF stands for Exchange Traded Fund.

An ETF pools investments in a portfolio of assets, such as equities or bonds.

ETFs trade on stock exchanges, and their market price can change during the trading day.

Many ETFs track a particular index, such as MSCI World or the S&P 500. Others are actively managed.

When researching an ETF, it is relevant to understand both the fund's investment objective and its actual holdings.

1. Investment universe: what does the ETF own?

The first criterion concerns what the ETF invests in.

A global equity ETF can provide exposure to many companies and sectors. A technology ETF, by contrast, may focus on a single sector.

Two ETFs can therefore have very different characteristics even though both trade on an exchange.

Points to examine include:

Whether the ETF invests in equities, bonds or other assets.
The sectors and markets it covers.
Whether it tracks an index or follows an active investment strategy.
The companies or securities it holds.

2. Risk: how much can the value fluctuate?

All investments involve risk, but ETFs do not all have the same risk profile.

Many ETFs marketed to retail investors in the EU have a standardised risk indicator from 1 to 7 in their Key Information Document (KID).

A higher category indicates greater risk under the indicator's methodology.

However, the indicator does not measure the maximum loss, and a low risk category does not mean an investment is risk-free.

Historical price fluctuations, previous large falls and concentration in individual markets can also be relevant.

Past results can help explain an investment's history, but cannot predict future returns.

3. Costs: what does the ETF cost?

ETFs have ongoing costs that reduce investors' returns.

You will encounter terms such as TER and ongoing charges.

Imagine two ETFs with annual ongoing costs of 0.10% and 0.40% respectively.

For an investment whose value stays at DKK 100,000, that is approximately DKK 100 and DKK 400 a year respectively.

The difference is DKK 300.

Total costs may also include dealing commissions, currency conversion, the bid–ask spread and other expenses.

Compare both the funds' disclosed costs and the expenses involved in trading them.

4. Diversification: how spread out is the investment?

Diversification means spreading investments across multiple assets.

An ETF may hold hundreds or thousands of equities. But the number does not tell the whole story.

If a large proportion of the fund's value is concentrated in a few companies, those companies can still have a substantial influence on its overall returns.

Also examine:

The number of holdings.
The share of the largest positions.
The sector allocation.
The country allocation.

An ETF with 1,000 equities is not automatically less risky than one with 100.

5. Geography: which countries are you exposed to?

An ETF can be global without being evenly spread across the world's countries.

Many global equity indices weight companies by market capitalisation. Larger equity markets and companies consequently carry more weight.

For example, MSCI World covers developed markets, whereas FTSE All-World also includes emerging markets.

You can examine the proportions invested in the US, Europe and emerging markets, and whether particular countries are included.

6. Distribution type: accumulating or distributing?

An ETF can be accumulating or distributing.

An accumulating ETF generally reinvests the income the fund receives.

A distributing ETF pays income to investors according to its distribution policy.

The difference concerns how the fund's income is handled. Neither type automatically delivers a higher total return.

Danish tax treatment also depends on the fund's tax classification and the account type, rather than simply whether the ETF accumulates or distributes income.

7. Investment strategy: how are investments selected?

Two ETFs can invest in the same broad market while following different strategies.

One might track a broad market-capitalisation-weighted index, while another uses specific selection or weighting criteria.

These might relate to dividends, company size, sectors or sustainability.

The strategy affects which companies the ETF owns and how the portfolio develops.

How do you compare ETFs in practice?

Imagine you have chosen the following criteria:

Your criterion	ETF characteristic	Result
Maximum annual ongoing costs: 0.25%	0.20%	Met
Accumulating	Accumulating	Met
Emerging markets must be included	Developed markets only	Not met
At most 50% in one country	Country allocation unavailable	Unknown

This is a hypothetical example.

It shows how an investment can meet some criteria without meeting them all.

Compare ETFs with your own criteria

Wizer Invest is a tool for comparing your chosen investment criteria with documented characteristics of equities, funds and ETFs.

You decide which criteria to include. The result shows how the investment compares with them.

Wizer does not tell you what to buy. The tool makes it easier to understand an investment's characteristics.

Frequently asked questions

How do you choose an ETF as a beginner?

Start by examining its investment universe, risk, costs, diversification and geographic exposure. Read the fund's official factsheet and Key Information Document.

How many ETFs should you own?

There is no universal number. A single broad ETF may contain many different investments, whereas several ETFs can overlap substantially.

Is a low-cost ETF always better?

No. Low costs reduce expenses but, on their own, tell you nothing about the investment's risk or exposure.

Can you lose money on an ETF?

Yes. ETFs can fall in value, and there is no guarantee you will get back your full investment.

This article provides general information, rather than personal investment advice.

Sources: Investor.gov — Exchange-Traded Funds, MSCI World Index.

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This article is general information and not investment advice.

A Danish man who enjoys his profitable accumulating ETFs.

ETF

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What is TER? How costs affect your investment

TER stands for Total Expense Ratio and describes a fund’s ongoing costs as a percentage of its assets. It is a useful comparison point, but does not necessarily cover every cost involved in investing in an ETF.