ETF základy
How to Compare Two Similar ETFs and Choose the Better One
Key takeaways
- Tracking difference over 3–5 years is more important than TER — it shows the fund's actual total return.
- A larger fund (higher AUM) generally has a lower risk of liquidation and a narrower spread when trading.
- Irish domicile (ISIN starting IE) is an advantage for tax efficiency, including for Czech investors.
- Accumulating type defers tax liability and works better through compounding.
- Always perform the comparison for your specific goal — the same index may have different winners for distributing vs. accumulating.
Selecting an ETF on the same index is not about which has a prettier name — it comes down to tracking difference, domicile, replication method, fund size, and dividend treatment. Here is a systematic process for comparing two candidates.
Step 1: Check tracking difference, not just TER
TER (Total Expense Ratio) is the annual fee stated in the prospectus. But the fund's actual costs are different — the fund can erase part of the TER through securities lending. Tracking difference over the last 3–5 years tells you how the fund actually performed against the index. Look for the lowest (or negative) tracking difference possible. Source: trackingdifferences.com or the performance section on the provider's website.
Step 2: Fund size (AUM)
A fund with AUM below €100 million is a liquidation candidate. A larger fund also has:
- A narrower spread when trading on the exchange
- A lower probability of administrative changes
- More data for tracking difference comparison
Step 3: Domicile and tax efficiency
Irish domicile (ISIN starting "IE") is advantageous for an investor from the Czech Republic investing in US equities — 15% withholding tax instead of 30%. Luxembourgish domicile ("LU") is the second most common option. More in the article why UCITS ETFs with Irish domicile.
Step 4: Accumulating or distributing
For a long-term passive investor with no income needs, an accumulating ETF is generally more advantageous — it reinvests dividends automatically and defers tax liability. Distributing makes sense if you want regular income or live off dividends. More detail in the article accumulating vs. distributing ETFs.
Step 5: Replication method
Physically replicated ETFs are more transparent and carry no counterparty risk. Synthetic ones may have a slightly more favourable tracking difference due to tax structure. For a beginner, physical replication is a simpler choice — fewer things to understand.
Practical example
If you want an S&P 500 ETF, take three candidates, compare their tracking difference over 5 years, check AUM, domicile, and type (Acc/Dist). The winner for you as a Czech tax resident with a long horizon and no dividend income need will most likely be an accumulating Irish fund with the best historical tracking difference. Portfolio basics are in the ETF guide.
This is not investment advice.
FAQ
What is tracking difference and how do I find it?
Tracking difference is the gap between an ETF's return and its benchmark index for a year. You can find it on the provider's website under performance or on the portal trackingdifferences.com. Look for history over multiple years, not just the most recent year.
How large should a fund be to be safe?
AUM above €500 million is a good indicator of stability. Funds above €1 billion from reputable providers are practically free from liquidation risk. Below €100 million there is an elevated risk of winding up or merger.
Is an accumulating ETF always better?
For a long-term passive investor with no income needs, yes — it reinvests automatically and defers tax. If you live off dividends or want regular cash flow, a distributing fund is the right choice. It depends on your specific plan.