The strong rise in exchange-traded funds among retail investors is probably being driven by younger investors according to new research.
Young people ages 18 to 34 are more than twice as likely than those over 55 to hold ETFs in their portfolios, with 92% of the younger cohort doing so compared to just 43% of the older group.
The findings are part of a recent survey from Invesco that also reveals that 84% of younger ETF investors typically hold a significant investment in the asset class — more than a quarter of their portfolios – compared to just 30% of over 55s with this level of allocation.
Across all age groups, the study found a lack of understanding is the main barrier to ETF investing, with 60% of private investors unable to accurately say what “ETF” stands for and 62% not certain what ETFs do.
“Retail investors are looking for simple, low-cost investment options with the potential for outperformance, but too many are unaware of how ETFs can help meet these objectives,” said Gary Buxton, head of EMEA ETFs at Invesco.
Lack of knowledge was the main reason for not investing in ETFs cited by poll participants (48%) followed by an inherent preference for active management (12%) and a perceived lack of suitable options (5%).
“While we expect newer investors to need education about the benefits of investing in ETFs, the number of experienced investors that have are not realising these benefits, having never invested in ETFs, is surprising. It is incumbent on us, as ETF providers, to better explain the role our products can play in portfolios,” Buxton added.