Ameritrade sees opportunity in limited ETF awareness among investors.
TD Ameritrade, which began offering free trading on about 100 ETFs earlier this month, said awareness of exchange-traded funds remains limited more than 15 years after the first one was launched, with just 15 percent of investors surveyed saying they owned any in their portfolios.
The survey, conducted by St. Louis-based sales and marketing firm Maritz, found that about a third of investors had heard of ETFs and about a quarter had a basic understanding of them. At the same time, TD Ameritrade said a separate survey of its own clients, also conducted by Maritz, revealed that almost half of them used ETFs and more than two-thirds had heard of them, a key finding that fueled its decision to offer free ETF trades.
“ETFs are still a relatively new asset class, and as awareness continues to increase, we believe the popularity of ETFs will increase as well," Mike McGrath, director of ETFs at TD Ameritrade, said in a statement.
The first exchange-traded fund, the SPDR S&P 500 ETF (NYSEArca: SPY), was launched by State Street Global Advisors in 1993. SPY is now the biggest ETF in the world, with $81.83 billion in assets, and the entire U.S. industry has by now collected $936.26 billion in more than 1,000 funds, according to data compiled by IndexUniverse.com. ETFs have become known for their flexibility, canvassing diverse swaths of the investment universe, both broad and narrow.
The ability to reduce risk through diversification was the No. 1 requirement for choosing an investment product among the nearly 40 percent of investors who said in the Maritz survey they were undecided about investing in ETFs.
The Maritz poll was based on a survey of 852 investors polled from May 27 through June 7, TD Ameritrade said. To be eligible for this survey, respondents had to have an account at a brokerage or mutual fund company and at least $25,000 in marketable securities or cash. The margin of error was ±3.4 percent.
TD Ameritrade said the survey of its own clients also showed that use of ETFs has climbed 60 percent since 2007.
"ETFs may fulfill many of the stated needs that investors have told us are important to them," McGrath said. "It's a matter of awareness, education and simplifying the selection process."