Investors are embracing innovation and choice but still have an appetite to learn more about
July 2, 2014 – SAN FRANCISCO–(BUSINESS WIRE)– According to Charles Schwab:
- 66% of investors say there is room for more ETFs on the market today
- 71% are confident in their ability to pick an ETF that’s right for them, yet nearly 40% still want a better understanding of how to choose and use the products
- Investors’ understanding of ETFs is improving: 40% of investors say they know more now than a year ago
- 40% of investors today consider themselves ETF “novices” vs. 45% in 2013
- 20% of ETF owners say ETFs make up at least a quarter of their total investments
Even with a perceived proliferation of ETFs on the market today, two-thirds (66 percent) of investors say there is room for more, according to a new study by Charles Schwab. Among them, nearly 60 percent say more ETFs will lead to increased competition and lower prices, and that continued product innovation is necessary to keep up with a changing market and economy. More than a quarter (28 percent) say that more product choice is the industry trend that has most benefited investors in the past few years.
The 2014 ETF Investor Study by Charles Schwab is the fourth installment of an annual online survey of more than 1,000 individual investors between the ages of 25-75 with at least $25,000 in investable assets who have purchased ETFs in the past two years or are considering doing so in the near term.
The study found that seven out of ten investors say they are confident in their ability to choose an ETF that is right for their investment objectives. Yet, even as investors are embracing choice, a surprising 38 percent of investors say they want a better understanding of how to choose an ETF. Thirty-nine percent would like to better understand how to best use ETFs in their portfolio.
“It’s clear that investors expect innovation and choice when it comes to ETFs, but that enthusiasm is coupled with a desire for a deeper understanding of how to choose and use the products,” says Heather Fischer, vice president of ETF platform management at Charles Schwab. “Although 40 percent of investors still consider themselves ETF novices, that group has been steadily shrinking and is down from 45 percent in 2013. What this means is that education remains a top priority but as ETF investors are becoming increasingly savvy, they are seeking products, strategies and access that go beyond the basics.”
A leader in the retail ETF market, as of May 31, 2014, Schwab had $210 billion in ETF assets custodied on its platform. Its proprietary Schwab ETFsTM had $20.5 billion in assets as of May 31, 2014.
A Healthy Serving of ETFs
ETFs make up an average of 18 percent of portfolios among those who own them. One in five owners says that ETFs account for 25 percent or more of their total investments, up from 16 percent who said the same thing in 2011.
Investors use ETFs to accomplish a variety of investment goals. Forty-four percent primarily use ETFs for core or long-term holdings, while 22 percent use them for tactical or short-term investments. And 34 percent of investors like ETFs for both long- and short-term holdings.
When asked to imagine their investment portfolio as a dinner menu:
- 57 percent of investors compare ETFs to a side dish
- 30 percent of investors look at ETFs as an optional dessert
- 13 percent view them as the main entrée
While the majority of investors see ETFs as a side dish now, there is evidence that the portion is growing, and more are likely to see it as an entrée in coming years. Half of all investors expect that their portfolio will have a higher proportion of ETFs in the next five years.
When it comes time to buy ETFs, funding will come from cash: 44 percent will tap existing cash from money market or other accounts, and 40 percent will invest with new cash.
Confidence is Key
As investors gain a deeper understanding of ETFs their confidence grows. The most confident ETF investors– the 16 percent of all investors who say they are extremely confident in their ability to choose an ETF – see ETFs playing a more significant role in their portfolio:
- 38 percent view ETFs as the main entrée of their investment portfolios
- 63 percent expect to increase their ETF investments in the next year, compared to 46 percent of all investors
Education: Beyond the Basics
Forty percent of investors say they know more about ETFs today than they did last year. Sizable numbers of investors say they “have a good understanding” of many ETF basics, such as how they differ from other products (45 percent), the benefits and risks of investing in them (37 percent and 36 percent), and how to use ETFs for targeted exposure to certain asset classes (34 percent). The study shows that investors are looking for what is next and want education to advance their understanding of ETFs. The topics of highest priority, where perceived knowledge is low and a desire for more understanding is high, are as follows:
New Frontiers
This year’s study reveals that 39 percent of investors are curious to learn more about ‘smart beta1’ products that use fundamentally weighted indexes, low volatility or equal weight strategies, among others. Of that group, three quarters want a better understanding of the differences between smart beta strategies and nearly eight in ten want to know how to best use them in their portfolios. Nearly a third of investors are interested in learning more about Exchange Traded Notes and commodities ETFs.
Investors are also interested in new ways to access ETFs. Three out of five want ETFs in 401(k) plans. The most attractive benefit, according to these investors, would be the ability to invest in market segments that are more accessible than mutual funds (37 percent). The appealing low cost of ETFs (24 percent) and their intra-day tradability (24 percent) followed. One in five respondents predicts that increased availability of ETFs in 401(k)s will be the most positive ETF trend for investors in the next several years.
“ETF investors welcome innovation and as they look ahead they believe that better education, more products and choices and the availability of ETFs in 401(k) plans will be one of the most critical developments for ETF investors over the next several years,” noted Fischer. “The future of ETFs certainly appears bright, but as an industry it is our responsibility to keep the flame alive with the right education and resources so investors can keep pace.”
About ETFs at Schwab
Schwab offers a range of resources to help clients choose ETFs that fit their investment needs, including the Schwab ETF Select List™; tutorials, education, research and tools available via Schwab’s online ETF center and the ETF Education Exchange®; and live events at local Schwab branches.
In addition to the 21 proprietary ETFs from Charles Schwab Investment Management, which can be bought and sold commission-free online in Schwab accounts, Schwab ETF OneSource offers investors and advisors access to the most commission-free ETFs anywhere in the industry2. Commission-free online trading is available to individual investors at Schwab, to the nearly 7,000 independent investment advisors who use Schwab’s custodial services and through Schwab retirement accounts that permit trading of ETFs.
About the 2014 ETF Investor Study by Charles Schwab
The 2014 ETF Investor Study by Charles Schwab is the fourth installment of an annual online survey of more than 1,000 individual investors between the ages of 25-75 with at least $25,000 in investable assets who have purchased ETFs in the past two years or are considering doing so in the near term.
Conducted by Koski Research from May 8 – 14, 2014, the study has approximately a 3% margin of error. Survey respondents were not asked to indicate whether they had accounts with Charles Schwab. All data is self-reported by study participants and is not verified or validated.
About Schwab
At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com.
