Getting a Better Handle on ETF Investing

The exchange traded fund universe has quickly expanded as more investors divert their wealth to the investment vehicle. While the number of fund options may be daunting, it is also important to keep in the mind basics or best practices when investing in ETFs.

In the investment community, financial experts may have taken the basics for granted, focusing too much on complex portfolio and risk management investing styles.

“What we haven’t been successful in is engaging retail clients in the ‘hows’ to use ETFs,” Paul Baiocchi, V.P. of sector and ETF investment strategy at Fidelity SelectCo, told ETF Trends in a call. “There is a massive gap in education.”

Baiocchi and the Fidelity SelectCo team recently reviewed their 17 million retail investor accounts to find trends in clients’ ETF usage and demographics, and they discovered some surprising facts: ETF clients tend to be older, wealthier and “buy & hold” ETFs on average over 19 months.

The findings run contrary to how the financial industry has viewed ETF usage, with many attributing the growth to intra-day liquidity and greater tax efficiency among the more attractive attributes of the investment vehicle, and greater adoption trends among younger investors.

“We don’t believe there is a better or worse way to use ETFs, but there has been a disconnect between what many of us believe are common usage trends, and what retail investors (and our clients) are actually doing,” according to Fidelity.