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If I could go 10 years back in time with information I know now, and pick out an ETF to invest in with the goal of making the most profit, what are the key pieces of information from the funds fact sheet that I would help inform my decision?

Maybe we could use two ETFs with strikingly different past performance as an example:

As of today, EZA has a 10-year performance of -3.71%; but a yield of 21.03%; while VT has a 10-year performance of 5.97% and a yield of 2.90%. I assume both of these metrics are important to look at... but is there a "one metric to rule them all" to tell me which I should pick when I travel back in time?

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  • Why are you wasting time with this complexity? Look at a screener and determine what stocks have the highest 10 year returns and just buy them. If you really want some bang for the buck, find the largest one year gainers for each year and then leverage yourself to the gills with options. Lastly, place all of your trades on the FANTEX (the Fantasy Exchange) where time travelers always make money. (PS: Performance is real income, yield is not).
    – Bob Baerker
    Apr 26, 2020 at 21:35
  • I think the time travel bit was a distraction. See my response to Amar.
    – Oliver Angelil
    Apr 27, 2020 at 3:41
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    The time travel bit must be a distraction, because a I’m having a very difficult time understanding your question. Is your question really about the difference between performance and yield?
    – Ben Miller
    Apr 27, 2020 at 10:45

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Assuming your plan is to buy and hold, reinvest dividends, and sell after 10 years, then the 10-year performance is that "one metric to rule them all". There's no need to look at any other number.

...well, aside from taxes. The 10-year performance assumes you're not paying taxes; if you are paying taxes, the answer's going to be more complicated.

But in any case, the 10-year performance numbers are telling you that an investor who used the above strategy with EZA lost 3.71% of their investment, while an investor who used the above strategy with VT gained an amount equal to 5.97% of their investment.

The yield tells you how much of your investment was converted from stock into cash each year. Since you're converting it from cash right back into stock, the yield doesn't really matter, except for the purposes of taxation.

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While Bob's comment was funny in pointing out the absurdity of your question, I sense that there is an elementary question that you are actually trying to ask --, namely, can you use historical performance of ETFs to gain understanding of what I can buy in the present?

The obvious answer is yes, but gaining useful understanding is very difficult.

ETFs complicate your problem a lot. Where successful investors like Buffett have a strong understanding of what make companies strong, an ETF combines baskets of companies together. Are you willing to analyze the strength of each company and compare that to the % holding of said company in any given ETF? And then, are you going to be comparing ETFs in the same space? I.e, all cloud-computing ETFs, or all oil ETFs?

Or are you going to be comparing all ETFs?

In the latter, your problem's complexity grows exponentially. What made cloud computing a smash hit between 2011-2019, may not hold true for 2020-2030. Suppose a technology comes out this year that lets computers be stored in the collective human consciousness. Or, suppose cloud computing triples in power and halves in price and integrates with every piece of appliance you own.

How would you be able to make your choice in ETFs by looking at a single number like 5-yr return or %-yield?

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  • My question is rather more simple. What key past performance metrics should I look at to gauge how much profit its investors made? Returns/yield/etc. I know that past performance doesn't say much about future performance, but that was not my question.
    – Oliver Angelil
    Apr 27, 2020 at 3:39
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    @Oliver Angelil - XYZ is $100 and it pays $4 a year in dividends. That's a 4% yield. If you buy XYZ at the close today for $100 and tomorrow morning it goes ex-dividend for $1, the adjusted close in the morning will be $99. There is no immediate gain from receiving a dividend. You achieved a 1% yield but zero total return (ignoring taxation). That $1 of yield becomes true income when XYZ recovers to $100. When you sell XYZ, your total return will be capital gain/loss plus dividends. Historical performance numbers depict this. For a more detailed explanation, see Tanner Swett's answer.
    – Bob Baerker
    Apr 27, 2020 at 16:24
  • Thanks - that was an excellently explained. In stock price time-series, can one see the dip in stock price on the dates when dividends is paid out?
    – Oliver Angelil
    Apr 27, 2020 at 19:01

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