A recent survey by TD Ameritrade found that nearly 20 years after the first ETFs were introduced, investors remain unfamiliar with them. Of the investors TD Ameritrade polled, only 34% said they’d heard of ETFs and fewer than 25% said they had a basic understanding of them. Only 15% said they owned ETFs in their portfolios.
TD Ameritrade recently launched a commission-free ETF Market Center featuring 101 ETFs selected by Morningstar. Don Phillips, president of fund research at Morningstar, agrees that the “basic construct” of an ETF is quite esoteric for many investors. “There are complexities in ETFs that are quite subtle and difficult to grasp,” he says, like the difference between an exchange-traded fund (ETF) and an exchange-traded note (ETN). “With exchange-traded notes, which is what a lot of the commodity offerings are, you end up with a whole host of different concerns because it’s really the entity that’s backing the note and their creditworthiness that’s the key issue,” he explains.