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ETF Use Keeps Growing (and Growing)

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Charles Schwab’s seventh annual survey of investors in exchanged-traded funds finds that individual investors’ ETF adoption is on track for explosive growth.

Investors in the survey said 27% of their portfolios, on average, were currently in ETFs, compared with 16% in 2012. Moreover, 42% said ETFs would be the chief investment product in their portfolios going forward, up from 28% who said this last year.

Respondents said they expected have a third of their portfolios in ETFs in five years.

Last month, ETFGI reported that exchange-traded funds and products listed in the U.S. had gathered net flows of $275 billion in the first seven months of this year, just shy of the $279 billion of net inflows in all of 2016.

“It has been fascinating to watch attitudes toward ETFs evolve over the seven years we’ve done this survey,” Heather Fischer, vice president for ETF and mutual fund platforms at Charles Schwab, said in a statement.

“Each year, investors tell us that ETFs play an even greater role in their portfolios, and all signs point to that growth continuing,” Fischer said. “As investors have become more familiar with the versatility of ETFs, their confidence levels have grown.”

She noted that half of respondents considered their understanding of ETFs at an intermediate level, and nearly all were now fully confident in their ability to choose an ETF that was right for their investment objective.

Koski Research conducted the annual online survey in July of 1,264 individual investors age 25 to 75 with at least $25,000 in investable assets who had purchased ETFs in the past two years.

Millennial Adoption

Fifty-six percent of millennials surveyed said ETFs were their investment vehicle of choice, compared with 42% for all investors.

Sixty percent of millennials said they expected to increase investments in ETFs in the next year, and 63% expected ETFs to be their primary investment vehicle in the future.

Nearly 60% of both millennials and older generations in the survey said they used ETFs to reach long-term goals, such as building wealth and saving for retirement. However, millennials were much likelier to consider holding only ETFs rather than solely investing in individual securities.

“Millennials continue to lead the charge when it comes to ETF adoption,” Fischer said.

“Millennials have grown up with ETFs, and because of this familiarity they seem to be more comfortable than other generations in embracing them as their investment vehicle of choice — and enjoying the benefits of low costs, tax efficiency and transparency.”

Indeed, 62% of investors prioritized a low expense ratio and 60% total cost above all else when choosing an ETF, the survey found.

When evaluating brokerages, 55% of respondents said the ability to trade ETFs without commissions or other brokerage fees was the most important or a very important consideration, compared with 38% who said this in 2012.

“While costs have been trending downward across the industry, it’s clear that ETF investors still keep an eye on what they’re paying,” Fischer said.

Socially Responsible Funds

At present, just one in 10 ETF investors is invested in socially responsible investments, but interest in these strategies is growing, according to the survey.

Sustainable, responsible and impact investing rose by 33% between 2014 and 2016 to $8.7 trillion, according to recent research.

Forty-six percent of all respondents in the Charles Schwab survey, and 60% of the millennials, said it was important to invest in socially responsible funds because they wanted their investment to align with their beliefs.

Fifty-one percent of investors said they would increase their investment in SRI strategies if more product information were offered.

The survey found that SRI had already gained traction among millennial ETF investors, with 48% actively seeking out funds that use such strategies, compared with 30% of all investors.

In addition, 63% of millennials said SRI strategies could help them reach their investing goals, versus 47% of all respondents.


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