Schwab Study Sees Growing ETF Demand

ETF demand shows no signs of flagging, according to the results of Charles Schwab Corp.’s 11th annual ETFs and Beyond Study, in which nearly all respondents said they expect to continue investing in the funds. 

Ninety-three percent of ETF investors—non-ETF investors were also among respondents—replied they were likely to consider purchasing an ETF in the next two years. Forty-one percent of those who were not yet ETF investors said they’d buy in the next two years. Among experienced ETF investors, the love appeared to grow, with 80% responding that ETFs are their preferred investment vehicle, up from 71% in 2020.  

The continuing appeal of ETF investing comes amid the worst investing environment in years. The S&P 500’s 18% year-to-date decline is the worst performance since the 2008 Great Recession.  

While reasons for the continued appeal of ETFs in a downturn weren’t spelled out, the survey indicates enthusiasm from young investors—who made up the bulk of the respondents—is helping. Schwab Managing Director and Head of Equity Product Management David Botset said Gen X and millennials are driving growth faster than boomers. 

“ETFs continue to resonate with investors, continue to find a place in client portfolios,” he told ETF.com, adding that helping investors create their own ETFs is also pushing demand. “We're finding investors increasingly looking at opportunities to personalize their investments and being able to use the ETF vehicle as a way to do that.” 

Years of Rapid Growth 

Support for ETFs remains solid even after years of rapid growth. Assets under management in the U.S. have more than doubled over the past five years to $6.48 trillion, as of August’s end, according to ETF.com data. That number is about 10% lower than the beginning of the year.  

Those responding included 1,000 ETF investors, 1,000 non-ETF investors and 200 participants who only started investing in 2020 or later. They ranged in age from 25 to 75, were required to have at least $25,000 in investable assets and to have either bought an ETF in the last two years or have some familiarity with ETFs. 

Questions in the survey address topics like the appetite for ETFs, the evolution of ETF investors, personalization, millennials and new ETF investors. 

Ownership Projections 

ETF investors project that as much as 40% of their portfolios will be in ETFs by 2027; in 2017, ETF respondents accurately predicted that their exposure to ETFs would grow from 27% at the time to 33% in 2022, the Schwab report says.  

Millennial ETF investors currently say they have 41% of their portfolios invested in ETFs, with the amount expected to grow to 48% in the next five years. Boomer ETF investors also expect their allocations to grow, though from 19% now to 26% in five years.  

Source: Charles Schwab ETFs & Beyond Study 

When it comes to types of ETFs investors plan to buy in the next year, 56% of respondents said U.S. equities. Another 47% said they were planning to buy bonds or fixed income ETFs, with real assets also selected by 47% of participants. Cryptocurrencies were selected by another 46%.  

Investors said total cost was a key consideration when selecting an ETF, with 58% labeling it an “extremely important” criteria. Low expense ratio was deemed extremely important by 52% of respondents, while the same amount said that about the reputation of the ETF provider. 

Source: Charles Schwab ETFs & Beyond Study 

Contact Heather Bell at [email protected]