The ETF universe continues to expand at an fast clip as more investors turn to the cheap, easy-to-use investment vehicle to access various market segments.
“We continue to see ETFs grow, grow, grow, and it’s not surprising,” Heather Fischer, Vice President of the ETF & Mutual Fund Platforms at Charles Schwab, said at the recent Morningstar ETF Conference. “We recently did our annual ETF investor study, and the results tell us that they have long been interested in ETFs and that enthusiasm continues.”
When Charles Schwab first asked investors five or six years ago, respondents said 16% of their portfolios were in ETFs. The number has risen to 27% this year, and in five years, investors are predicting 33% of their portfolios will be made up of ETFs.
“So it’s a continued powerful high trajectory,” Fischer said.
Various investor demographics also show varying preferences for ETF usage. Across the broader investment groups, around 40% say they will utilize ETFs, but for millennials in particular, 60% to 65% say they like incorporating ETFs into their investment portfolios.
“[Millennials] are really leaning in,” Fischer said. “So the numbers overall are strong, but they are powerfully strong with millennials.”
Among the various strategies attracting greater attention, smart beta ETFs have hit the scene running, and interest for the alternative index-based strategies is only expanding.
“Five, six years ago, the question was, ‘Do these strategies work?'” Tony Davidow, Vice President of Alternative Beta & Asset Allocation Strategists at Charles Schwab, said at the conference. “Now the question is, ‘How do I use them? How do I distinguish between the array of strategies that held on the marketplace and then, more specifically, how do I use them to build better portfolios?'”
As the industry expands and more investment strategies are brought to market, ETF providers have done an excellent job in educating potential investors. However, the investment community still has a ways to go as many still don’t fully understand the relatively new investment vehicle, so education will remain a longstanding issue within the industry.
“Frankly, there’s a lot more that needs to be done,” Davidow added.
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