A Spectrem Group study on Exchange Traded Funds (ETFs) shows that an investor’s knowledge of investment products leads to the purchase of ETFs.
Similarly, an advisor’s knowledge of investment products can also lead less knowledgeable investors to move into the ETF market.
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Exchange Traded Funds are similar to mutual funds because they are a collection of assets, but they are different in that they are traded throughout the market day like a stock rather than at the end of the business day as mutual funds are. That makes ETFs more volatile and possibly more lucrative.
From the study, the overall interest in ETFs stem from the investment record of the fund and a recommendation by an advisor. In both cases, 44 percent of investors say the investment record and advisor recommendation prompted them to purchase ETFs.
But the numbers vary widely based on investor knowledge. Fifty-one percent of those who consider themselves very knowledgeable about investments said the investment record was the key reason for getting into ETFs, while 66 percent of those with little knowledge said an advisor’s recommendation got them into ETFs.
Those among the very knowledgeable apparently don’t need advisor recommendations. Only 21 percent overall said advisor recommendations were the reason they invested in ETFs.
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By GlobalDataOperating expenses and fees also were a key investment reason for the very knowledgeable investors. While 38 percent of the total study group said fees and expenses were their reason for investing, 48 percent of the very knowledgeableable chose that explanation.
It makes sense, too, that information on the particular holdings within the fund would be a factor, and 29 percent of the very knowledgeable said that familiarity with the individual holdings was a reason for owning investments. Only 22 percent of the total study group said that knowledge led them to own ETFs.
Another key factor for the very knowledgeable was the liquidity of ETFs. While the total study showed 48 percent of investors used liquidity as a factor in investing in ETFs, 61 percent of the very knowledgeable selected liquidity as a reason, while only 23 percent of those with little knowledge did so.
A very telling factor in the popularity of ETFs among the knowledgeable is the percentage of investors who prefer ETFS or mutual funds. Thirty percent of investors said they preferred mutual funds, and that number was similar across all knowledge segments. But while 24 percent of the total group preferred ETFs, a full 35 percent of those with great knowledge said they preferred the ETFs. While 47 percent of the study group said they preferred having both products in their portfolio, only 39 percent of the very knowledgeable said they preferred having them both, while 57 percent of those with little knowledge said they preferred both.
