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Investors’ Appetite for ETFs Is Robust and Growing: Schwab

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What You Need to Know

  • Schwab found 94% of ETF investors and 45% of non-investors surveyed expect to buy ETFs in the next two years.
  • Millennials continue to lead the way in ETF adoption.
  • Investors exhibit much more confidence today when it comes to making decisions about ETFs.

Investors in exchange-traded funds expect the share of these products in their portfolios to grow to 38% in the next five years from 29% at present, according to Charles Schwab’s latest ETF investor study, released this week.

Ninety-four percent of ETF investors said they expected to buy ETFs in the next two years, and 45% of those who are currently non-investors said they would likely do so in the next two years.

“Over the decade we have conducted this study, ETF investors’ appetite and affinity for ETFs has grown dramatically,” David Botset, senior vice president of product strategy for Charles Schwab Investment Management, said in a statement. 

“This year we also asked non-ETF investors about their interest in ETFs. At a time when individual investors are particularly engaged in the markets, it is interesting to see that a significant pool of investors who have never dipped a toe into the world of ETFs are interested in adding these products to their portfolios.”

Logica Research conducted an online survey Nov. 9 to Nov. 29 among 2,000 individual investors 25 to 75 with at least $25,000 in investable assets who are aware of ETFs. 

In the latest survey, millennials continued to lead the way in ETF adoption, with 29% of the cohort planning to significantly increase investments in ETFs, compared with 23% of Generation X investors and 9% of baby boomers. 

Millennials estimated that in five years, 43% of their portfolios would be in ETFs, versus 39% for Gen Xers and 29% for boomers.

As to their specific ETF preferences, investors in the survey pointed to actively managed ETFs, market cap index ETFs and fixed income ETFs as the main categories they thought would add value in helping them reach their investment goals. 

According to the results, active semi-transparent ETFs are beginning to attract investors’ interest, with 16% of respondents saying they planned to invest in these specialty ETFs over the next year.

ETF Investor Evolution

Schwab noted that the proportion of ETFs in investors’ portfolios increased by about 50% over the last decade, growing from average allocations of 19% to 29%, four percentage points higher than ETF investors had predicted in the firm’s 2015 survey.

Today, investors exhibit much more confidence when it comes to making decisions about ETFs. In the latest study, 41% of investors said they were extremely confident in their ability to choose ETFs that can help achieve their investment objectives, compared with 18% who said this in 2015. 

Similarly, 77% of ETF investors today consider themselves experienced or intermediate when it comes to their understanding of ETFs, compared with 57% in 2015.

“Education is a key ingredient to success in all aspects of investing, so it is very exciting to see the evolution that has taken place with ETF investors’ familiarity and comfort with ETFs,” Botset said. 

“Certainly the myriad strengths of ETFs — from tax efficiency, to low fees, to transparency — have paved the way for investors to adopt them as foundational building block components of an investment portfolio.”