As the growing group of millennials come of age and begin to grow their wealth, more younger investors are beginning to look at exchange traded funds.
For example, ETF inflows saw a big bump from millennial investors, those born between the early 1980s to 2000, in February, compared with prior months, according to TD Ameritrade data on clients trading and investing on its platform.
“Millennials play a key role in the future of our industry,” Keith Denerstein, director of product management at TD Ameritrade (AMTD), previously told Investor’s Business Daily. “Approximately one-third of our new accounts are from millennials, and while they’re in the early stages of the investing life cycle, they’ve already proven to be extremely savvy with their investment decisions.”
Specifically, millennial ETF net flows increased at an annualized rate of 24% in January/February, compared to 13% in November/December and 19% in the twelve months prior to November. February net flows a;sp increased at an annualized rate of 26%.
In contrast, Gen X, those born from early-to-mid 1960s through 1980, ETF net flows increased at an annualized rate of 12% in Jan/Feb, compared to 5% in Nov/Dec and 15% in the twelve months prior to Nov. February net flows increased at an annualized rate of 12%.
Lastly, Boomers’ ETF net flows increased at an annualized rate of 17% in Jan/Feb, compared to 11% in Nov/Dec compared with 11% in the twelve months prior to Nov. February net flows increased at an annualized rate of 14%.
The old and young can still find some common ground though. For instance, boomers and millennials are both heavy on financials, which saw a large positive upswing in recent months. In contrast, all age categories also pulled money out of defensive sectors post-election but re-purposed the money in other potential growth sectors like industrials and financials.
“Millennials, in particular, have shown sustained buying interest in the sectors with the greatest positive momentum following the U.S. presidential election,” added Denerstein.
The younger generation of investors have also focused more on low-cost, passive investing and remaining invested for the long-term as recent studies show more ETF positions among millennials than older investors. For instance, millennials at TD Ameritrade tend to prefer low-cost funds, according to Bloomberg analysis.
Millennials with TD Ameritrade accounts have 16% of their portfolios invested in ETFs, followed by Gen Xers at 15% and baby boomers at 10%. Similarly, a Schwab study from 2015 found that 41% of millennials utilize ETFs, compared to 25% among Gen Xers and 17% among baby boomers.
Denerstein says, reflecting, “Millennials were among the first cohort to adopt ETFs as a foundational component of their investing strategies. As they age and acquire more assets, we expect to see the inclination toward these products continue to grow.”