Half of exchange-traded fund investors in the 2013 Charles Schwab ETF investor study said they plan to increase their ETF holdings over the next year, representing a 22% rise in demand from 2012, Schwab reported Thursday.
Nearly one in 10 investors, or 9%, now hold 50% or more of their portfolios in ETFs, more than double the 4% reported last year. Cost and fees continued to be critical factors when investors make ETF buying decisions, according to the survey that studied ETF investors both in and outside of Schwab's platform, but worries about possible hidden fees topped investors' concerns about expense ratios and trade commissions.
"Demand is up across the board, and investors who own ETFs appear to be more interested in the product than ever," said Beth Flynn, vice president of ETF platform management at Charles Schwab, in a statement. "We're seeing less discussion of 'if' and more about 'how' investors will buy and use ETFs. We're seeing an upward shift in sophistication among ETF investors, and a hunger to learn more."
The 2013 ETF Investor Study, Schwab's third annual survey of ETF investors, is an online survey of more than 1,000 individual investors between the ages of 25 and 75 with at least $25,000 in investable assets. Conducted by Koski Research in August, the survey focuses on investors who have purchased ETFs in the past two years and/or are considering purchasing ETFs in the next two years.
A Merrill Lynch retail ETF analyst in attendance at the Morningstar ETF Invest Conference 2013 in Chicago who was familiar with the Schwab study said Friday that he the survey results were useful. "They provide data points about ETF investors," he said, noting that whether or not an investor buys ETFs comes down to two factors: cost and education.
Similarly, the Schwab study found that investors reacted strongly to lack of transparency when it comes to cost, with 94% saying that understanding an ETF's total cost is important. Clarity around a fund's redemption fees or other hidden fees was considered the No. 1 cost factor, with 71% calling it extremely important. That factor ranked ahead of expense ratios at 61% and trade commissions at 54%.
Investors surveyed also pointed to the importance of education, with the study revealing that three in 10 investors said they still need to know more about ETFs in order to invest more in them. Respondents are most interested in learning more about ETFs' tax implications, followed by a desire to understand how to best use ETFs in a portfolio.
