Key Considerations in Selecting ETFs for Passive Investing

Over the last decade, Exchange-Traded Funds (ETFs) have seen exponential growth in popularity among investors. They offer unique advantages such as liquidity, low expense ratios, and diversification. However, there are also risks associated with investing in ETFs, such as tracking error and liquidity premiums.

Assume you are an equity portfolio manager tasked with constructing a passive equity portfolio solely using ETFs. Describe the key considerations you must take into account when selecting ETFs for your portfolio. Discuss the benefits and limitations of using ETFs in a passive investment strategy.