Exchange Traded Funds More Popular Among Knowledgeable Investors
Exchange traded funds have been in existence for approximately 20 years, but their popularity as an investment option seems to depend entirely on one’s knowledge of investment products in general.
A Spectrem’s Millionaire Corner study on Exchange Traded Funds (ETFs) shows that an investor’s knowledge of investment products leads to the purchase of ETFs. Similarly, an advisor’s knowledge of investment products can also lead less knowledgeable investors to move into the ETF market.
Exchange Traded Funds are similar to mutual funds because they are a collection of assets, but they are different in that they are traded throughout the market day like a stock rather than at the end of the business day as mutual funds are. That makes ETFs more volatile and possibly more lucrative.
From the study, the overall interest in ETFs stem from the investment record of the fund and a recommendation by an advisor. In both cases, 44 percent of investors say the investment record and advisor recommendation prompted them to purchase ETFs.
But the numbers vary widely based on investor knowledge. Fifty-one percent of those who consider themselves very knowledgeable about investments said the investment record was the key reason for getting into ETFs, while 66 percent of those with little knowledge said an advisor’s recommendation got them into ETFs.
Those among the very knowledgeable apparently don’t need advisor recommendations. Only 21 percent overall said advisor recommendations were the reason they invested in ETFs.
Operating expenses and fees also were a key investment reason for the very knowledgeable investors. While 38 percent of the total study group said fees and expenses were their reason for investing, 48 percent of the very knowledgeableable chose that explanation.
It makes sense, too, that information on the particular holdings within the fund would be a factor, and 29 percent of the very knowledgeable said that familiarity with the individual holdings was a reason for owning investments. Only 22 percent of the total study group said that knowledge led them to own ETFs.
Another key factor for the very knowledgeable was the liquidity of ETFs. While the total study showed 48 percent of investors used liquidity as a factor in investing in ETFs, 61 percent of the very knowledgeable selected liquidity as a reason, while only 23 percent of those with little knowledge did so.
A very telling factor in the popularity of ETFs among the knowledgeable is the percentage of investors who prefer ETFS or mutual funds. Thirty percent of investors said they preferred mutual funds, and that number was similar across all knowledge segments. But while 24 percent of the total group preferred ETFs, a full 35 percent of those with great knowledge said they preferred the ETFs. While 47 percent of the study group said they preferred having both products in their portfolio, only 39 percent of the very knowledgeable said they preferred having them both, while 57 percent of those with little knowledge said they preferred both.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.