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Professional investors have long been important drivers of exchange traded funds adoption and registered investment advisors are significant contributors to that trend – one that continues accruing momentum. Data confirm that momentum.
At the end of the second quarter, US-listed exchange traded products had a combined assets under management tally of $9.18 trillion after notching 13.1% growth through the first six months of the year, according to ETFGI. Whether it’s low fees or tax benefits, among other favorable traits, advisors are ETF devotees and that’s positive for both money managers and their clients.
State Street Global Advisors’ (SSGA) 2024 ETF Impact Survey highlights a variety of interesting data points pertaining to ETF usage among advisors and institutional investors. For example, 70% of advisors “always” or frequently recommend ETFS to their clients. That’s slightly ahead of the 67% of institutional investors that said the same thing.
That’s only the start of the compelling data regarding advisor usage of ETFs. Read on for more.
ETF Devotees Are Truly Dedicated
Whether it’s a wealth management firm or an institutional investor, ETF devotees are, well, truly devoted. The SSGA survey describes “heavy” ETF users as having an average of 3.1 reasons for widely embracing ETFs while those in the “light” camp have a still impressive average of 2.5 reasons. Of course, the foundations for said reasoning are relevant.
Examining the “heavy” cohort of ETF issuers, including advisors, SSGA found that 60% like the cost efficiencies offered by this fund structure while 56% enjoy the diversification benefits. Roughly half cited the following three reason as among their enthusiasm for ETFs: cash management, liquidity and accessing unique asset classes.
“When making a choice between ETFs that offer the same or similar exposure, the most important factors considered by advisors are best track record/performance (58%), lowest expense ratio (54%), and highest liquidity (54%),” according to SSGA.
Interestingly, those in the “heavy” group said they’re more pleased with portfolio performance over the past year than those in the “light” segment. Another noteworthy fact turned up in the SSGA survey is that 80% of institutional investors said they’re “likely” to consider actively managed ETFs while just 4% said they are unlikely to do so.
What About Retail Investors?
In the U.S., 96% of retail investors said they are aware of ETFs, up from 92% at the end of 2022. However, as SSGA notes, just 45% of global retail investors currently hold ETFs. That’s progress from the 40% seen in 2022, but there’s clearly room for improvement.
Among retail investors that have yet to embrace ETFs, 71% cite tax complexities while 69% say they’re not familiar with ETFs’ pricing structures. In other words, more education could go a long way toward increasing ETF adoption among self-directed investors. Perhaps not surprisingly, younger investors are more likely to own ETFs than older peers, many of whom became familiar with funds via mutual funds.
“The use of ETFs by individual investors is highest among younger individuals, as 58% of Millennial investors report they hold ETFs, compared to 47% of Gen Xers and 37% of Baby Boomers. The top reasons individual investors cite for holding ETFs in a portfolio include diversification benefits (49%), access to specific asset classes/exposures (47%) and lower costs/expense ratios (39%),” concludes SSGA.