While most can agree that the market for exchange traded funds has been firmly established, the ETF market is still in its early stages, and most investors require further education on this relatively new investment product.
According to a Charles Schwab study, 80% of investors believe that ETFs are “here to stay,” with 41% planning to invest more into fund products over the next year. [What is an ETF? — Part 1: The Basics]
Specifically, sector, equity and international ETFs are drawing the greatest attention, with energy, healthcare and technology ETFs rank amongst the top picks on a sector-by-sector basis.
“It’s very exciting to see investors rally enthusiastically around ETFs as an essential part of their investing toolbox – but now we need to make sure that their knowledge about the use of ETFs fully matures as well,” Beth Flynn, V.P. of ETF platform management at Charles Schwab, said in a press release.
While knowledge about ETFs is slowly spreading, with 39% of investors stating they know more about ETFs than a year ago, 45% of all investors still believe they are “novices” at ETFs. About 34% of ETF owners rate themselves as a “novice” and 57% believe they have “intermediate” knowledge.
On the other hand, 63% of those who don’t own ETFs call themselves “novices,” and 53% of respondents say they don’t invest in ETFs because they don’t fully understand the product.
For those interested in ETFs, tax implications, the best use of ETFs and potential risks rank among the top concerns.
Additionally, the Schwab study revealed that 55% of investors want to see ETFs included in their employer-sponsored retirement accounts, but only 12% have the option right now.
When describing the most important factor in picking ETFs, the investors pointed to expense ratios. [ETF Fee Wars: Looking Beyond Expense Ratios]
“Most investors generally understand that ETFs tend to offer diversification at a low-cost, but many still need more insight and education on how best to use them, the risks involved and potential tax implications,” Flynn added.
The study was an online survey, with 1,010 respondents between the ages of 25 and 75 that have a minimum $25,000 in investable assets, are somewhat familiar with ETFs and have purchased ETFs in the last two years or consider purchasing ETFs in the next two years.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.