Self-Directed Investors Increased ETF Allocations

Mutual funds are still the top investment in retirement plans

Mutual funds are still the top investment in retirement plans, but ETFs are gaining ground. Mutual funds are still the top investment in retirement plans, but ETFs are gaining ground.

Self-directed investors are opening up to exchange-traded funds in their retirement accounts, an analysis released Monday by Schwab found.

The institutional SDBA Indicators Report found that self-directed investors with brokerage accounts inside their retirement plan allocated 14% of their total portfolio to exchange-traded funds in the first quarter, up two points from a year ago.

Exchange-traded funds were also the only category to grow in net asset allocation, Schwab found.

Mutual funds are still the leading category, though. The report found 41% of overall portfolio allocation was to mutual funds. About a quarter is allocated to individual equities, while cash fell to 18%.

Average balances in self-directed brokerage accounts grew, too, Schwab found, increasing 1.3% over the fourth quarter and 10.6% over last year to $194,545.

Schwab noted that’s in spite of the S&P having its worst start to a year since 2009, confusion over the Federal Reserve’s intentions on interest rates and worries about China.

Among exchange-traded funds and mutual funds, investors allocated most of their dollars to large-cap funds, at 30% each. International equity ETFs are another favorite. Schwab found investors allocated 17% to those funds.

Commodity ETFs, however, lost favor. While there was relatively little change in ETF allocations in the first quarter, commodity allocations fell from 11% in the first quarter of 2013 to just 6%.

Mutual fund allocations were similarly stable. The biggest change was in taxable bond funds, which fell to 19% from 24%.

Information technology was the most popular sector for individual securities, followed by financials and consumer discretionary, unchanged from last year. Investors increased their allocation to health care to 11% from 9%.


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