Even as ETF adoption surges, a surprising group of investors appears to be holding back. Boomers (aged 52-70) are in their peak investing years, but they lag behind their children and parents when it comes to using exchange traded funds (ETFs), according to data released today by BlackRock, Inc. The “BlackRock ETF Pulse Survey,” which polls advised and self-directed individual investors, found that only 27% of Boomers invested in ETFs, compared to 42% of Millennials (21-35) and 37% of Silvers (71+).
“Boomers, who came of age during one of the most extended bull markets in memory, may still be holding onto a stock-picking mentality,” says Martin Small, head of U.S. iShares at BlackRock. “They may not realize that ETFs are as easy to trade as stocks and available in virtually every market segment imaginable. As a result, many pre-retirees and investors in their early years of retirement may be overlooking the ETF revolution. “
Their children, and parents, however, are purchasing ETFs in record numbers. Millennials saw the biggest jump in ownership, with 42% compared to 33% last year. Silvers also had a strong uptick in ETF adoption, nearly doubling to 37% versus 22% last year. Usage among women increased to 30% from 23%.
The survey also reveals continued record adoption of ETFs overall, as 1 in 3 investors now use ETFs, up from 1 in 4 last year. The number of investors set to buy ETFs in the next year spiked to 62%, from 52% last year, with Millennials and Gen Xers (aged 36-51) leading the way (at 85% and 64%, respectively).
And, for those who already own ETFs 88% plan to continue or increase their use of ETFs.
Embracing ETFs for lower costs and new ways to solve portfolio challenges
As more investors become familiar with ETFs, investors are finding new ways to access markets, trade exposures, and build more efficient portfolios with ETFs.
“People have evolved from ‘what are ETFs?’ to ‘how do I use them to meet my investment goals?’ That’s a tremendous shift from a few years ago and a reflection of greater awareness, and the innovative ETFs coming to market,” says Small. “Today, iShares is able to index exposures with greater quality and precision that we could only dream of just a decade ago.”
Costs remain a top consideration for investors, and that’s driving more ETFs to the core of portfolios. Other prominent uses include diversification, and international and sector exposures.
ETF investors are also thinking long term. One third of investors plan to increase their use of ETFs for long-term investing, with the average holding period up to nearly 6 years, from 5 last year. Only 5% of investors use ETFs for less than a year.
ETFs and Mutual Funds? Yes, to both in a portfolio.
The “active versus passive” debate is still a hot topic for investors, but they don’t see ETFs as either-or propositions. The majority (65%) see a mix of ETFs and mutual funds as the best approach to building a portfolio. Just 10% believe there is no need to hold mutual funds if you have ETFs, while a quarter are comfortable with just mutual funds.
Interestingly, while more investors would prefer to beat the market than simply track it (35% to 26%, respectively), they acknowledge that choosing winners is hard and only 1 in 4 think they can successfully select active managers who can outperform the market.
“The whole active-passive argument is outmoded,” says Small. “Today, investors have ETFs and mutual funds, and they can both be used together. There are many ETFs that replicate strategies used by active managers, and many active managers that hug the index. More to the point, every decision is active, whether it’s where and when to invest, which vehicle to use or how much you’re willing to pay for the goal you’re seeking. There is no such thing as a passive portfolio.”
Awareness gaps in ETFs for income investing and tax efficiency
Even as more people become familiar with ETFs, there remain gaps in knowledge about the full breadth of applications. For example, while half of investors use individual stocks to generate income, only a third use ETFs for this purpose. As a result, stock-pickers may be unintentionally concentrating risk in their portfolios — if a company cuts its dividend, for example or its stock price drops — compared to a more diversified dividend-paying ETF. Silvers are the standouts, not surprisingly: nearly two-thirds say they use ETFs to generate income.
Many investors are similarly under-utilizing ETFs to provide many of the same benefits as mutual funds, such as reducing overall risk (49% use mutual funds vs. 35% for ETFs) and improving performance (42% use mutual funds vs 33% for ETFs). Just 23% of investors recognize ETFs’ inherent tax efficiency, one-third that ETFs can be used for bond investing, and four in 10 that most ETFs track indexes.
These gaps are opportunities for investors to get informed and broaden the investment toolkit.
“Even with the explosive growth of ETFs in the U.S. and around the world, they are still a relatively small part of the investable universe,” says Small. “We believe this is just the beginning, as more people seek efficient, low-cost ways to build out their core portfolios, diversify internationally, target niche markets and put their hard-earned cash to work.”
BlackRock helps investors build better financial futures. As a fiduciary to our clients, we provide the investment and technology solutions they need when planning for their most important goals. As of December 31, 2017, the firm managed approximately $6.288 trillion in assets on behalf of investors worldwide. For additional information on BlackRock, please visit www.blackrock.com | Twitter: @blackrock | Blog: www.blackrockblog.com
About the BlackRock ETF Pulse Survey
The BlackRock ETF Pulse Survey examines the attitudes and investment behaviors of investors in the United States. Over 1,000 respondents in the U.S. were surveyed online in August, 2017. The online survey, which was conducted by Market Strategies International, an independent research agency, has a margin of error of +/- 3.0 percentage points. The BlackRock ETF Pulse Survey is one of three in a series of insight-driven studies fielded by BlackRock including BlackRock’s Global Investor Pulse Survey and the DC Pulse Survey.
iShares® is a global leader in exchange-traded funds (ETFs), with more than a decade of expertise and commitment to individual and institutional investors of all sizes. With over 800 funds globally across multiple asset classes and strategies and more than $1.5 trillion in assets under management as of December 31, 2017, iShares helps clients around the world build the core of their portfolios, meet specific investment goals and implement market views. iShares funds are powered by the expert portfolio and risk management of BlackRock, trusted to manage more money than any other investment firm1.
Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
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Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders. Diversification and asset allocation may not protect against market risk or loss of principal.
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