ETF allocations up 70% over five years, finds Charles Schwab

Sep 12th, 2017 | By | Category: ETF and Index News

The importance of ETFs within an average investor’s portfolio has increased substantially over the past five years, according to the 7th annual survey of investor attitudes by Charles Schwab. Survey respondents indicated that more than a quarter of their portfolios (27%) are currently in ETFs, up from just 16% in 2012. Looking ahead, 42% of ETF investors say ETFs will be the primary investment vehicle in their portfolios in the future, up significantly from 28% last year.

Heather Fischer, vice president, ETF and mutual fund platforms, Charles Schwab

Heather Fischer, vice president, ETF and mutual fund platforms, Charles Schwab

Heather Fischer, vice president, ETF and mutual fund platforms, Charles Schwab, commented: “Each year investors tell us that ETFs play an even greater role in their portfolios, and all the signs point to that growth continuing. As investors have become more familiar with the versatility of ETFs, their confidence levels have grown.

“Half of ETF investors consider their understanding of ETFs at an intermediate level, and almost all are now fully confident in their ability to choose an ETF that is right for their investment objective.”

A generational breakdown of the survey data shows that more than half of Millennials (56%) say ETFs are their investment vehicle of choice, more than any other generation. Sixty percent of Millennials surveyed expect to increase investments in ETFs in the next year, and most (63%) expect ETFs to be the primary investment vehicle in their portfolio in the future.

Nearly 60% of Millennials say they use ETFs to reach long-term goals such as building wealth and saving for retirement, which is consistent with older generations.

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

While only one in ten ETF investors are currently invested in socially responsible investments (SRI), there appears to be growing interest in these strategies. Almost half of ETF investors (46%) believe it is important to invest in socially responsible funds because they want their investments to align with their beliefs, and half (51%) would invest more in these strategies if more SRI product education was offered.

Socially responsible investing has already gained traction among Millennial ETF investors, with almost half (48%) actively seeking out funds that use SRI strategies, and 63% saying they believe SRI strategies can help them reach their investing goals.

When choosing an ETF, investors prioritize a low expense ratio (62%) and total cost (60%) above all else. When evaluating brokerages, the importance ETF investors place on the ability to trade ETFs commission-free has risen significantly over the last five years. Fifty-five percent said the ability to trade ETFs without commissions or other brokerage fees is the most important or a very important consideration, compared to 38% in 2012.

“ETF investors continue to demonstrate a strong desire for cost-effective ways to meet their investing goals,” Fischer said. “While costs have been trending downward across the industry, it’s clear that ETF investors still keep an eye on what they’re paying.”

The 2017 ETF Investor Study by Schwab is the seventh instalment of an annual online survey of more than 1,200 individual investors between the ages of 25-75 with at least $25,000 in investable assets who have purchased ETFs in the past two years.

Charles Schwab currently offers 21 ETFs listed in the US with total assets of around $85bn. The largest is the Schwab International Equity ETF (NYSE Arca: SCHF) which was launched in March 2009 and has $11.7 billion in assets under management (AUM) with a total expense ratio (TER) of 0.06%.

The joint cheapest Schwab ETFs are the Schwab US Broad Market ETF (NYSE Arca: SCHB) and the Schwab US Large-Cap ETF (NYSE Arca: SCHX) which have TERs of just 0.03%, making them the cheapest ETFs currently available globally along with the iShares Core S&P Total US Stock Market ETF (NYSE Arca: ITOT). SCHB and SCHX were both launched in March 2009 and have AUM of $10.3bn and $9.9bn respectively.

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