How to Read ETF Annual Reports

Any end-of-year financial report can be difficult for an investor to read. There are often up to 100 pages of graphs, charts and data, and many of them don't even apply to each investor. There are a few things you can do to help you read ETF annual reports.

Difficulty: Moderate

Instructions

1. Get the report from the ETF issuer or financial institution. Annual reports are often released at different times, depending on the institution, but they are usually out between August and December. You can often get a digital copy online; otherwise, you may have to request a hard copy.

2. Look through the general information on the first few pages of the report. Many annual reports tell you how the market as a whole behaved over the past year. You may find interesting facts, like which industries experienced the most growth, the range of returns for your financial institution and which markets lost the most money.

3. Flip through to your appropriate ETF pages. You'll find specific information about your ETF's performance during the year. Comparing the net asset value for the beginning of the year with the end-of-year value will give you a general overview of how your stock performed.

4. Look at the expected performance charts for your ETF funds. You can read these charts to get an idea of how much your institution expects the ETF to grow in the next 6-month period. These predictions can be helpful in determining whether or not the ETF will be able to meet your investment goals in the coming year.

5. Read the fund profile to learn the details of your investment. For example, the profile of a utilities fund should break down the top-10 best-performing companies in the ETF. You'll also learn about the industry distribution, like how many electric, gas and water utilities make up the ETF.

6. Check the back of the report for important information to help you pay taxes on your realized capital gains. Most reports lay out an example of how to calculate your after-tax returns and determine the total expenses you paid to the financial institution.

Tips & Warnings

• The annual and semiannual reports can be useful even if you don't have any ETFs. Look up reports online to find out more about the earning and makeup of potential ETF investments.
• Pay special attention to the price/earnings ratio. This number is an important estimate of future growth. A higher ratio means higher expected returns in the coming year.