Are there too many exchange-traded funds on the market? When asked, the majority of investors are saying no.
In fact, two-thirds of the investors say there is room for more ETFs, according to the 2014 ETF Investor Study, released Thursday morning by Charles Schwab.
Michael Iachini, managing director of ETF & mutual fund research for Schwab and a certified financial planner, said this is especially interesting considering the perceived proliferation of ETFs on the market today.
“Investors are saying that markets are changing, environments are changing, and they need ETFs to keep up with that,” Iachini said. “That was the number one cited reason for why they’re comfortable with there being more ETFs out there.”
More ETFs also means more competition and lower prices, which is good for the fee-conscious investor.
Those in the survey that didn't want any more ETFs noted that there are too many choices and products out there right now.
“The ones who say there are too many — and they’re in the minority anyway — are just saying ‘Boy, it’s tough to sort through.’ So that’s what we need to do, is help them sort through the huge number of ETFs out there.”
This means Schwab needs to help investors sort through ETFs to find the ones that make sense for them, as it currently does with its ETF Select List, Iachini said.
The study is based on an online survey of more than 1,000 individual investors ages 25 to 75 with at least $25,000 in investable assets and who have purchased ETFs in the past two years and/or are considering purchasing ETFs in the next two years.
Having done similar surveys since 2011, Schwab is starting to notice trends, Iachini said. The percentage of assets in ETFs has risen over the past few years. The average from this year’s study is around 18% of an investor’s assets, up from 16% last year.
The other trend Schwab has noticed is the percentage of investors who feel they are ETF novices has gone down.
“Although 40% of investors still consider themselves ETF novices, that group has been steadily shrinking and is down from 45% in 2013,” said Heather Fischer, vice president of ETF platform management at Charles Schwab, in a news release. “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.”
And while that number of ETF novices has gone down, there are still investors saying they need more knowledge.
The study found that seven out of 10 investors are confident in their ability to choose an ETF that is right for their investment objectives. But 38% of investors say they want a better understanding of how to choose an ETF, and 39% want to better understand how to use ETFs in their portfolio.
“What we are trying to get from the survey is where do we need to focus and what do investors need to know from us?” Iachini said. “Part of what we’ve been looking at for this year to help us go forward is, 'where do investors tell us they have unanswered questions?'”
Investors want to know more about the tax implications of ETFs, how to use more sophisticated exchange-traded products, and how to choose and use an ETF in general, the study found.
“That kind of information is really useful for us to focus our education efforts,” Iachini said.
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