What ETF Investors Want

June 13, 2018

ETF investors care about cost. A lot. They care about cost more than brand name, more than exposure—even more than the return of the fund in which they've invested.

That's one of the more eye-popping conclusions found in Charles Schwab's 2018 ETF Investor Study, an online survey of 1,500 ETF investors released Tuesday.

The annual survey offers a wealth of insights into ETF investor behavior, including the differences in how the genders and generations employ ETFs. Participants in the study ranged between the ages of 25 and 75, with at least $25,000 in investable assets.

Below are our five main takeaways from the survey:

It All Comes Back To Cost

By far, the most important factor to respondents when choosing a fund was its cost. Investors cared about an ETF's expense ratios, commissions and spreads more than they cared about its exposure, brand name, liquidity—yes, even the fund's historical returns.

 

For a larger view, please click on the image above.

 

That lines up well with the results of ETF.com's most recent advisor survey, in which advisors ranked expense ratio as their prime consideration when choosing ETFs, above other factors like index, performance and spreads.

Intriguingly, ETF investors also appear to be concerned about per-trade cost, in addition to cost of ownership. According to the survey, 64% of investors considered the ability to trade ETFs commission free as "most" or "very" important. Also, a growing number of investors (31%, up from 23% in 2017) said they would switch their account to a brokerage firm that offered commission-free ETFs.

Millennials Are ETF True Believers

Unsurprisingly, ETFs are the preferred vehicle for 72% of ETF investors, and truth be told, we'd probably question a survey of ETF investors that didn't find most of them liked using ETFs. What is remarkable here, though, is the fervor that ETFs inspire in their investors—especially younger ones.

A whopping 91% of millennials (age 25-37) agreed that ETFs were their investment vehicle of choice, compared with 80% of Gen Xers (age 38-53), 54% of boomers (age 54-72) and 30% of matures (over age 73):

 

For a larger view, please click on the image above.

 

Millennials also hold more ETFs in their portfolio than any other cohort. On average, millennials held 41.9% of their portfolio in ETFs, compared with 38.9% for Gen Xers, 23.2% for boomers and 17.4% for matures.

ETF's popularity with younger investors comes back to—what else?—cost, said Kari Droller, vice president of Third Party Mutual Funds and ETFs at Charles Schwab: "They're just a very cost-conscious generation."

Millennials have also "grown up with ETFs," she added. "When they think investing, they think ETFs."

However, millennials may also be gravitating to ETFs simply because they can. Unlike boomers or matures, most millennials don't have significant existing assets tied up in mutual funds or other instruments that would result in decades' worth of capital gains should they be converted to ETFs.

"More mature investors have more mature investment portfolios, and so the tax implications could be a big factor," said Droller.

That's not to say older investors are simply staying put in tax-inefficient instruments, however. Fifty percent of boomers and 58% of matures said they'd replaced at least some of their individual securities with ETFs. (Meanwhile, 64% of millennials reported the same.)

Find your next ETF

CLEAR FILTER