E*TRADE survey reveals top factors influencing ETF investment decisions

Mar 28th, 2017 | By | Category: ETF and Index News

Investors top concerns when deciding to invest in an ETF are choosing the right ETF, the complexity of an ETF and the tracking difference between the ETF and the underlying index, according to the results of a recent survey by trading platform E*TRADE.

E*TRADE survey reveals top factors that influence ETF investment decisions

The E*TRADE survey polled nearly 1000 active US investors on the factors that influence ETF investment decisions.

The research was conducted in January 2017 and sought to look into the minds and behaviours of self-identified experienced investors. It featured 904 active US investors who manage a portfolio of at least $10,000 in an online brokerage account with an even distribution across brokerages, geographic regions and age bands.

With roughly 2,000 ETFs currently available in the US, the survey revealed that investors may be starting to feel overwhelmed with the sheer number to choose from.

“ETFs have experienced extraordinary growth in recent years, allowing investors easy access to virtually any asset class and investing strategy,” said Rich Messina, SVP of Investment Products at E*TRADE. “With more choices than ever before, it’s no surprise that investors can experience selection fatigue. Before investing in any ETF, investors are wise to research the underlying positions of the ETF, the bid-ask spread, and the market capitalization, which can go a long way in helping to reduce concerns.”

In addition, the concern that an ETF’s actual performance may differ from expectations due to the complexity of the strategy, was also a key factor for investors when building an ETF portfolio.

Finally, the survey also showed that tracking difference was the 3rd highest concern for investors when making an ETF decision.

Tracking difference is the disparity between the return of an underlying index and the actual return given by an ETF that tracks it over a given period of time. ETFs will usually underperform their indices by a small amount, although the difference can be positive or negative. From an investor’s point of view, the smaller the tracking difference the better. Factors that influence tracking difference include total expense ratio, transactions costs, replication method and securities lending, among others.

The survey also shed light on certain disparities shown by investors of different age groups. Investors aged 25-34 are much more likely to be concerned about an ETF being delisted or liquidated (36%) than those aged 55 and older (10%). Those aged 55 and older are more likely to be concerned about choosing the right ETF (64%) compared to those aged 25-34 (43%).

Investors aged 25-34 appear to be the most open-minded with respect to asset class, with more from this age category showing interest in bond, commodity, style or market cap, leveraged, foreign currency, derivatives and inverse ETFs than either the 35-54 or 55+ age groups. The interest of the older two age groups were focused on US market, dividend, sector specific and foreign market ETFs.

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