There is a tremendous opportunity for providers of exchange traded funds (ETFs) to grow total assets for one simple reason—most potential retail investors have never heard of them, according to Mintel Comperemedia. The firm's latest research finds more than six in 10 investors say they don't invest in ETFs simply because they "don't know what they are"— and that number was the same for the higher income households that are most likely to be investors.
"Investment companies have a long way to go in getting the word out about ETFs," Susan Menke, vice president and behavioral economist at Mintel, says in a statement. "On the other hand, it does show that there is tremendous growth potential in this market."
Even investors who currently own ETFs don't feel entirely comfortable with their level of knowledge about the products. Mintel's data shows that only about half (54%) of ETF owners feel they are "very knowledgeable" when it comes to ETF investing. It seems owners of both mutual funds and individual stocks are even more befuddled, with only 17% of existing investors in each of these categories reporting they feel comfortable with investing in ETF products.
"ETFs really only burst on to the scene in the last few years, and obviously have not penetrated well into some potential markets," Menke adds. "One reason is that they are not commonly offered in qualified plans such as 401ks, but even those who invest in non-retirement accounts are still quite unfamiliar with the this newer type of investment."
Because ETFs offer a number of advantages, such as the ability to trade intra-day or to hedge the investment using instruments such as options, it is likely that growth in total ETF assets will continue at the expense of competitive products like mutual funds.
Along these lines, Mintel's report, Exchange Traded Funds,identifies several attractive consumer segments that could offer tremendous growth potential for ETF providers. Because of this, the company predicts that ETF assets will experience double digit growth over the next five years.