Merrill Edge Select™ ETFs: Selection Criteria

ETFs are generally classified by their asset class based on their Morningstar investment category. In some cases, similar Morningstar investment categories may be collapsed within Merrill Edge Select ETF asset classes. In other cases, some Morningstar investment categories that do not meet the selection criteria may not be included; for example, Merrill Edge Select ETFs do not include leveraged, inverse or actively managed funds at this time. In addition, any fund that does not meet our quantitative review, or is deemed to be categorized incorrectly, is eliminated and will be replaced by the next-ranking fund.

Merrill Edge Select ETFs meet a screening process developed by the Investment Management & Guidance Group of Merrill Lynch. These professionals use a quantitative multi-factor screening process and qualitative analysis to select funds, which can include:

• Identifying ETFs with a large number of assets under management since larger funds tend to have more liquidity, lower costs and more efficient pricing.
• Finding ETFs with the lowest tracking error by taking into account one- and three-year timeframes for both price and NAV tracking error.
• Measuring expense ratios to identify lower-cost ETFs.
• Screening for tighter spreads in the bid/ask ratio to select ETFs that have high liquidity and efficient pricing.

Generally, no factor alone determines the outcome of any selection, and factors have different weights in the filtering process. In addition, the criteria for different factors may vary by asset class as well as by time period. Information used to evaluate funds will generally include the most recent data available from the most recent period.