Exchange traded funds have given mom and pop investors broader access to a myriad of investment themes and strategies. While some are concerned that the plethora of choice and ease of use could cause staunch investors to become day traders, data reveals that most are using ETFs as core long-term positions.
According to Fidelity data pulled from customer accounts, clients held 4.1 ETFs on average or up 32% from four years earlier, Todd Rosenbluth, Director of ETF Research at CFRA, said in a research note. Additionally, as ETFs grown in popularity, the average ETF was held 26 in advisory accounts while it was held 19 months for retail accounts.
Investors were also more likely to sit on equity ETFs than taxable fixed-income options. Specifically, the average holding period of U.S. equity and international equity ETFs was 27 months and 25 months in advisory accounts, respectively, and 20 months for both categories among retail investors.
Taxable bond ETFs were held for 24 months and 16 months among advisory and retail accounts, respectively.
“CFRA thinks some Fidelity clients, similar to other investors, shifted toward dividend-paying equities and away from bonds given the low yields available. With a risk-on environment occurring since November and bond yields rising, such data may not have persisted,” Rosenbluth said.
Retail investors also favored sector-specific products on Fidelity’s platform while fixed-income bets diminished. Over the past four years, taxable bond exposure dipped 10% of overall ETF assets and sector product exposure rose to 14% from 10%. These were not tactical bets as sector ETFs were held on average 28 months among advisory accounts and 21 months in retail accounts as of November 2016.
“While some may expect that sector ETFs are used more tactically,” Paul Baiocchi, Vice President, Sector & ETF Investment Strategy at Fidelity SelectCo, told CFRA. “These ETFs are held for longer average holding periods than all ETFs.”
Baiocchi also pointed out that investors are leaning toward cheaper index-based ETFs. About 97% of flows into ETFs in advisory accounts in the one-year period ended November flowed into ETFs with expense ratios of 40 basis points or less.
For more information on ETF usage, visit our ETF performance reports category.