Tenth edition of Schwab’s ETF Investor Study shows strong and growing appetite for ETFs
ETF investors surveyed for the tenth edition of the ETF Investor Study by Charles Schwab & Co see the share of ETFs in their portfolios growing to 38 per cent over the next five years, up from 29 per cent today.
Nearly all ETF investors (94 per cent) say they are likely to purchase ETFs in the next two years. Notably, nearly half of the non-ETF investors surveyed (45 per cent) say they are likely to purchase ETFs in the next two years.
“Over the decade we have conducted this study, ETF investors’ appetite and affinity for ETFs has grown dramatically. They feel much more knowledgeable and confident in their abilities to use these products to help achieve their financial goals,” says David Botset, SVP of Product Strategy for Charles Schwab Investment Management, Inc. “This year we also asked non-ETF investors about their interest in ETFs. At a time when individual investors are particularly engaged in the markets, it is interesting to see that a significant pool of investors who have never dipped a toe into the world of ETFs are interested in adding these products to their portfolios.”
As in years past, Millennials continue to outpace Gen X and Baby Boomers in ETF adoption, though Gen X is not far behind. Over the next year, 29 per cent of Millennial ETF investors plan to significantly increase investments in ETFs, compared to 23 per cent of Gen X investors and 9 per cent of Boomer investors. Millennials estimate that in five years, 43 per cent of their portfolios will be in ETFs, compared to 39 per cent for Gen X and 29 per cent for Boomers.
When it comes to specific ETF preferences, ETF investors point to actively managed ETFs, market cap index ETFs and fixed income ETFs as the top categories that they feel will add value in helping them reach their investment goals. Active semi-transparent ETFs are beginning to attract investors’ interest, with 16 per cent saying they plan to invest in these specialty ETFs over the next year.
The proportion of ETFs in investors’ portfolios increased by about 50 per cent over the last decade, growing from average allocations of 19 per cent to 29 per cent. In 2015, ETF investors predicted that 25 per cent of their portfolios would be in ETFs in five years – a prediction that turned out to be short. They ended up with 29 per cent of their portfolios in ETFs in 2020, and they now expect that to grow to 38 per cent by 2025.
Investors feel much more confident when it comes to making decisions about ETFs. In the latest study, 41 per cent of investors say they are extremely confident in their ability to choose ETFs that can help achieve their investment objectives compared to just 18 per cent in 2015. Similarly, 77 per cent of ETF investors consider themselves experienced or intermediate when it comes to their understanding of ETFs, compared to 57 per cent in 2015.
“Education is a key ingredient to success in all aspects of investing, so it is very exciting to see the evolution that has taken place with ETF investors’ familiarity and comfort with ETFs,” says Botset. “Certainly the myriad strengths of ETFs – from tax efficiency, to low fees, to transparency – have paved the way for investors to adopt them as foundational building block components of an investment portfolio.”