Two ETFs both promise exposure to 'US small-cap stocks.' One charges 0.04% per year and holds 1,500 stocks weighted by market capitalization.

The other charges 0.65% per year and holds 80 stocks selected by a quantitative momentum model. Both call themselves small-cap funds.

The first is a passive index implementation of a well-defined factor; the second is an actively-managed strategy in an ETF wrapper, with the same SPIVA arithmetic working against it that works against any active fund. The fund name and ticker tell you almost nothing about which is which. The expense ratio, the holdings list, the tracking-error history, and the AUM tell you everything.

ETF due diligence is the discipline of reading those four numbers — and a few related ones — before you commit capital, instead of reading the marketing copy. This lesson is the checklist. Every ETF should be evaluated on five dimensions before purchase: expense ratio, assets under management, tracking error, holdings concentration, and overlap with the rest of your portfolio.