Do you own an ETF within your portfolio? Investors that do not hold ETFs may feel that these products are not for people like them. But there is no reason why an investor must be a sophisticated trader to hold ETFs, and indeed a preference for buying and holding funds should not preclude investment in ETFs.
Those are a couple of the findings of a new report on ETFs from the Investment Association (IA), which is calling on the industry to do more to improve education around and accessibility to ETFs.
It’s a big report with lots of survey stats and charts. Here’s a rundown of some interesting findings which might be relevant to investors.
ETF awareness growing
The good news is that appetite for ETFs amongst investors is increasing, particularly among younger investors. However, there is clearly knowledge gulf that is holding back wider adoption.
In fact, the IA specifies that younger, male and higher income investors are currently driving ETF adoption. Over 2 in 5 (41%) ETF investors are aged 18-34, and over two-thirds (68%) are male, significantly above the 56% of men in the overall investor sample, it says.
Key reasons to invest in ETFs
The respondents to the IA survey highlighted a mix of low costs, diversification and access to specific index performance as among the key reasons to invest in ETFs.
ETF investors also value features specific to ETF structures like exposure to specific investment themes/markets, which are harder to achieve by investing through broader index trackers.
Cost: The most commonly cited reasons for investing in ETFs are diversification and low fees. In the survey, 46% of ETF investors said they invest in them for diversification of investments and an equal 46% said “low fees and cost-effectiveness” is a major reason for holding ETFs.
Access to Specific Markets or Themes: ETF investors are also keen to invest in specific corners of the market – 32% invest in ETFs to get exposure to specific investment themes (like technology, clean energy and AI), while another 33% cited “access to specific markets, industries, or sectors”.
Diversification: Diversification is one of the obvious benefits and therefore the reasons behind investing in ETFs. The IA research claims the typical ETF investor’s portfolio is diverse – 47% of ETF investors hold investment trusts/companies, compared with only 21% of investors that do not hold them. And 46% of ETF investors in the survey said they invest in ETFs for diversification of investments.
Tax: 74% of ETF investors have a stocks and shares ISA, compared with 16% of all adults and 44% of the investors who don’t hold ETFs. The IA notes that “ETF investors are savvy about making best use of ISA contribution rates to avoid having to pay tax on capital gains or income”.