If you're unfamiliar with any of the terms or analysis we use in our ETF Authority newsletter, then you will likely find a complete description of these terms in our financial dictionary. To view our financial dictionary on our web site, please click here.

Although we'd love to answer all of your personal investing questions, SEC regulations prohibit us from providing direct, personal investing advice. Nonetheless, rest assured that we will always give you sufficient guidance on all of our investing ideas in each of our ETF Authority newsletters. As always, please make sure to do your own due diligence on each fund we mention in our newsletter to decide if it is right for your portfolio. You should use our newsletters for informational and entertainment purposes only. Any and all final investing decisions for your own account are entirely up to you.

In an effort to uncover today's most profitable ETFs, Nathan has developed a proprietary ETF rating system. This proprietary model incorporates his comprehensive research, analysis and market outlook, and it allows him to provide you with an easy-to-interpret letter grade for each and every ETF he profiles in The ETF Authority.

To determine this grade, he judges funds on a number of quantitative factors, including fees and expenses, volatility and risk-adjusted performance, relative returns, and tax efficiency, among other things. And to supplement this hard data, he adds his subjective, forward-looking assessment of a specific fund's outlook, based on relative strength, valuation and a host of other technical and fundamental criteria.

As the most important grading criterion, he assigns a fund's relative performance a score ranging from 1 (lowest) to 15 (highest). Each of the other five grading categories are worth five points. From that total, he determines a fund's grade as follows:

38 - 40 points -- A+
34 - 37 points -- A
31 - 33 points -- A-
28 - 30 points -- B+
26 - 27 points -- B
24 - 25 points -- B-
17 - 23 points -- C
14 - 16 points -- D
<13 points -- F

This grading methodology forms the foundation of Nathan Slaughter's ETF Authority newsletter, and needless to say, he focuses his research primarily on those select few funds that fall into the upper tiers of this scoring system.

Exchange-traded funds are some of the most innovative new securities to hit the market since the introduction of the mutual fund. When you purchase an ETF, you are gain instant exposure to a large (and often well diversified) basket of underlying securities -- usually those representing a particular index or sector.

Exchange-traded funds have grown increasingly popular in recent years, and the number of offerings has swelled into the hundreds from just a handful ten years ago. Today, these securities compete with mutual funds and offer a number of advantages over their predecessors, including:

Low Cost -- Unlike traditional mutual and index funds, ETFs have no front- or back-end loads. In addition, because they are not actively managed, most ETFs have minimal expense ratios, making them much more affordable than most other diversified investment vehicles. Most mutual funds also have minimum investment requirements, making them impractical for some smaller investors. By contrast, investors can purchase as little as one share of the ETF of their choice.

Liquidity -- Whereas traditional mutual funds are only priced at the end of the day, ETFs can be bought and sold at any time throughout the trading day. Many have average daily trading volumes in the hundreds of thousands (and in some cases millions) of shares per day, making them extremely liquid.

Tax-Advantages -- In a traditional mutual fund, managers are typically forced to sell off portfolio assets in order to meet redemptions. Often, this act triggers capital gains taxes, to which all shareholders are exposed. By contrast, the buying and selling of shares on the open market has no impact on an ETF's tax liability, and those that choose to redeem their ETFs are paid in shares of stock rather than in cash. This minimizes an ETF's tax burden because it does not have to sell shares (and therefore potentially realize taxable capital gains) to obtain cash to return to investors.

As with any security, the pros and cons should be weighed carefully, and investors should first do their homework to determine whether exchange-traded funds are the appropriate vehicle to meet their individual goals and objectives.

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