The rich are getting richer, at least in terms of keeping more money in their pockets by not paying the high fees charged by active mutual funds and opting instead for cheap ETFs.
The pendulum is shifting toward exchange traded funds, evidenced by the growing number of millionaires who prefer them, compared to six months ago.
“The share of Millionaires who say they’re likely to invest in ETFs rose from 10% in August 2012 to 30% in February,” Adriana Reyneri wrote for Millionaire Corner. [Sec Mutual Fund Fee Review Highlights ETFs’ Low Costs]
The interest of millionaire investors who prefer ETFs has grown three-fold over the past six months, according to research by Spectrem’s Millionaire Corner. The preference of single stocks is also up, while the choice to use mutual funds has remained constant. Adriana Reyeri for Millionaire Corner reports that last week’s rally in the Dow Jones Industrial Index led to the a new high of investment in U.S.-listed ETFs assets, to $1.442 trillion. According to the Investment Company Institute, this is an increase from $951 billion, which was recorded in September 2011. [After the Dow Record Close: What Comes Next?]
In comparison, the likelihood that an average retail investor would prefer or use ETFs over the next 12 months remains at about 6%. The amount of individual investors that have used ETFs has gone from 7% to 14%. The rate of change for non-affluent investors is flat, mostly because they are more unlikely to have sat down and spoken with a personal financial advisor. About 60% of investors that are worth $5 million or more have discussed the benefits ETFs can bring to a portfolio. [The Benefits of the ETF Structure]
Over time, this is expected to change, as ETFs are essentially touted for their diversification benefits, at a lower cost. Plus, ETFs are easy to trade, and can move at any time of day, not just at the market close.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.