How Beacon Picks and Ranks ETFs

Most screeners organize ETFs the wrong way

Traditional screeners start with the industry's language: asset class, Morningstar category, issuer. They assume you already know what you're looking for. "Large blend equity" means nothing to someone who just wants their money to grow.

Beacon takes a different approach. Every ETF is classified by the job it does for your portfolio, the reason you'd actually buy it. Then it's scored on the qualities that matter most to long-term, cost-conscious investors.

This page explains both systems in full. No black box.

Step 1: Classification. What does this ETF do?

Every ETF in Beacon is analyzed and assigned to one or more portfolio roles. Think of these as investor goals: the "jobs to be done" that your money needs to accomplish.

The 6 portfolio roles

A single ETF can serve up to three roles. For example, a REIT ETF like VNQ might qualify for both Get income (it pays dividends) and Beat inflation (real estate is a real asset). A total bond fund like BND serves both Get income and Stay safe.

This means when you select a goal in Beacon, you see every ETF that can do that job, regardless of its traditional category.

Beyond roles: the full classification

Portfolio roles are what you see first, but each ETF is classified across multiple dimensions to power the filters:

Asset class. The fundamental type of investment: equity, fixed income, commodity, real estate, mixed asset, alternative, money market, or cryptocurrency.

Region. Where the fund invests: North America, Europe, Asia Pacific, Emerging Markets, and more. Commodity and crypto ETFs have no region (they're inherently global).

Sector. For equity ETFs: technology, healthcare, energy, financials, and the other GICS sectors. Only set when the fund targets a specific sector.

Market cap. For equity ETFs: mega, large, mid, small, micro, or multi-cap.

Strategy. How the fund operates. This ranges from simple (index tracking, smart beta) to complex (option income, managed futures, tactical allocation). There are 15 strategies in the taxonomy. Beacon maps every ETF to exactly one.

Factor. For equity ETFs that follow a specific selection methodology: value, growth, quality, momentum, dividend, low volatility, and others.

This multi-dimensional classification is what lets you go from "I want growth" to "I want a low-cost, large-cap US equity ETF that tracks a broad index" in a few clicks, not a research project.

Step 2: Scoring. How good is this ETF at its job?

Once classified, every ETF receives a quality score from 0 to 100. The score reflects how well the fund meets the criteria that matter most to long-term passive investors.

The 4 scoring criteria

How it works

Each metric is converted to a percentile rank: your position relative to all other ETFs. If an ETF's expense ratio is lower than 80% of all ETFs, its cost score is 80.

For cost, the score is inverted: lower TER = higher score. For AUM and liquidity, we use a logarithmic scale because the difference between $100M and $200M matters more than the difference between $10B and $10.1B.

The four percentile scores are then combined using the weights above into a single composite score.

Why these weights?

The weighting reflects a Boglehead philosophy. Cost is king.

John Bogle spent his career proving that the expense ratio is the single most reliable predictor of how a fund will perform relative to its peers. A cheap fund doesn't guarantee good absolute returns, but within any category, the cheaper option almost always wins over time.

Size and liquidity are weighted equally at 25% each because they're two sides of the same coin: a fund that's large and actively traded is cheaper to own in practice (tighter spreads) and safer to hold (won't close on you).

Track record gets the lowest weight at 15%. Age matters (a fund with 10 years of history has survived real market stress), but it shouldn't penalize good new funds too heavily.

Step 3: Ranking. Where does it stand among peers?

The composite score tells you how an ETF compares to all ETFs. But that's not always the most useful comparison. A money market fund and a leveraged equity fund live in completely different worlds.

That's why Beacon ranks ETFs within each portfolio role. When you're looking at growth ETFs, you see how each one stacks up against other growth ETFs, not against bond funds or commodity funds.

If an ETF serves multiple roles, it gets a separate rank in each. VOO might be ranked #2 among "Grow my money" funds and unranked in "Get income" (because that's not its primary job).

What this means for you

You don't need to understand percentile calculations or memorize weight formulas. The system is designed so that the ETFs at the top of any goal are the ones a cost-conscious, evidence-based investor would naturally gravitate toward: cheap, large, liquid, and battle-tested.

If you disagree with the defaults, maybe you care more about track record or you want to include smaller niche funds, that's what the filters are for. The ranking is a starting point, not a verdict.

What we deliberately leave out

Beacon's quality score does not factor in past returns. This is intentional.

Past performance is the most seductive and least useful metric in investing. Decades of SPIVA data confirm this. A fund that returned 40% last year gets attention, but that tells you almost nothing about what it'll do next year. Meanwhile, a fund's expense ratio, size, and liquidity are structural advantages that persist.

We show you returns on each ETF's detail page. They're useful context. But they don't influence the ranking. The score rewards the qualities that give you the best odds going forward, not the ones that look good in a rearview mirror.