What stocks should you expect to find in a European ETF? How about a homebuilder ETF? While these questions should not be hard to answer, what's inside an ETF might surprise you and your clients.

CFRA's ETF research is based in part on the belief that an ETF is a basket of securities. So rather than judging an ETF using a rearview mirror approach, which can result in whiplash, we review the underlying holdings. The constituents of similar-sounding ETFs will be distinct, which impacts performance.

WisdomTree Europe Hedged Equity Fund (HEDJ 59 Marketweight) is a great example. Despite outflows in 2016, the $9 billion ETF has generated strong investor interest in recent years. Some currency-hedged ETFs such as iShares Currency Hedged MSCI Eurozone (EZU 36 Marketweight) are explicit that they focus on companies domiciled in the European Monetary Union, such as Sanofi and Siemens. But, HEDJ sounds like an ETF that might also have exposure to British American Tobacco or Nestle.

Yet HEDJ has no exposure to companies based in the United Kingdom or Switzerland because it too focuses only on the eurozone. In contrast, the largest and fourth largest countries for peer ETF Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU 26 Marketweight) are the U.K. and Switzerland.

In 2016, HEDJ rose 9.9%, ahead of the 8.4% for DBEU. But we think this is not because HEDJ does a better job tracking its index, but rather the holdings are different.

Shifting to the U.S., both SPDR S&P Homebuilders ETF (XHB 36 Overweight) and iShares US Home Construction ETF (ITB 30 Overweight) have approximately $1.1 billion in assets and trade about 2 million shares on a daily basis. Yet, despite XHB's name, the ETF has just 30% of assets in homebuilder stocks, less than half the percentage that can be found in ITB.

While ITB has double-digit weightings in its two largest holdings, DR Horton (DHI 31 *****) and Lennar (LEN 47 ***), XHB's top positions include Whirlpool (WHR 191 ****) and Johnson Controls (JCI 44 *****). CFRA agrees that strong housing demand will impact a variety of sub-industries, such as household appliances and building products. But in the past year, WHR and JCI have performed much better in the past year than the above-mentioned homebuilders. Both ETFs are ranked as Overweight by CFRA.

Looking for telecom exposure in an ETF? Better decide whether or not you want it mixed with technology, utilities or straight up.

Because Vanguard Telecommunications Services (VOX 100 Marketweight) has hefty 20%-plus weightings in AT&T (T 41 ****) and Verizon (VZ 50 ***) and more moderate positions in CenturyLink (CTL 26 ****), Level 3 Communications (LVLT 59 ****) and T-Mobile USA (TMUS 60 ***), but no stocks in other sectors. In contrast, SPDR S&P Telecom (XTL 71 Marketweight) has 60% in communications equipment companies such as Arista Networks (ANET 93 ***) and Palo Alta Networks (PANW 147 ***) as well as equally-weighted stakes in the above-mentioned telecom service providers.

XTL outperformed VOX by more than 200 basis points in 2016, but underperformed by 400 basis points in 2015, a reminder that when the constituents are different the records will be as well.

Meanwhile, despite not including telecom in its name, PowerShares S&P SmallCap Utilities (PSCU 48 Underweight) has 40% in telecom companies such as Cincinnati Bell (CBB 23 ***) and Cogent Communications (CCOI 42 NR); utilities ALLETE (ALE 64 NR) and South Jersey Industries (SJI 32 ***).

CFRA highlighted these examples during its participation during ETFs 101: Understanding & Evaluating ETFs at Inside ETFs in Florida this week. To learn more about our ETF approach, see the methodology document available on MarketScope Advisor or contact us at cservices@cfraresearch.com.