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Thursday, October 04, 2012

Schwab Study Says Investors Think ETFs Are for Real

News summary by MFWire's editors

ETFs aren't going anywhere, according to a Schwab survey released this morning.

According to the 2012 ETF Investor Study by Charles Schwab, 81 percent of investors think ETFs are "here to stay."

One of the key factors in buying ETFs? Cost.

On that note, investors pay most attention expense ratios, and then trade commissions.

The survey was conducted online with more than 1,000 investors between the ages of 25 and 75. Each participant had at least $25,000 in investable assets as well as "some familiarity with ETFs."

Read the whole company press release below.



Company Press Release

Exchange-Traded Funds (ETFs) Are Here to Stay, Investors Tell Schwab

Users Claim Knowledge Gains But Many Novices Remain

SAN FRANCISCO--(BUSINESS WIRE)--Exchange-traded funds (ETFs) are “here to stay,” declare 81 percent of respondents to the 2012 ETF Investor Study by Charles Schwab, but the need for education persists: 45 percent still call themselves novices when it comes to understanding these products, and a smaller number (39 percent) claim they now know more about ETFs than they did a year ago.

“It’s very exciting to see investors rally enthusiastically around ETFs as an essential part of their investing toolbox – but now we need to make sure that their knowledge about the use of ETFs fully matures as well,” said Beth Flynn, vice president of ETF platform management at Charles Schwab. “Most investors generally understand that ETFs tend to offer diversification at a low-cost, but many still need more insight and education on how best to use them, the risks involved and potential tax implications.”

The 2012 ETF Investor Study by Charles Schwab is an online survey of more than 1,000 individual investors between the ages of 25-75 with at least $25,000 in investable assets and some familiarity with ETFs. A leader in the retail ETF market, Charles Schwab had $142 billion custodied on its platform as of August 31, 2012. Schwab ETFs™, which can be bought and sold commission-free online in Schwab accounts**, had $7.2 billion in assets as of August 31, 2012. Schwab recently announced dramatic cuts to the expense ratios of all 15 Schwab ETFs, making them the lowest expense ratios in their respective Lipper categories.1

The Future is Bright for ETFs

Investors in the study signaled that their usage of ETFs will broaden in the future. Forty-one percent plan to invest more in ETFs in the coming year, with sector and equity funds topping the list as the types of ETFs under consideration. Energy, healthcare and technology are the sector funds investors are most interested in buying.

Investor enthusiasm for ETFs carries through to retirement accounts. Of those surveyed who have an employer-sponsored retirement account, 55 percent want the ability to access ETFs through them. Only 12 percent said they can select ETFs through their employer’s retirement account now.

Cost is King in the ETF Buying Decision

Cost is the number one factor investors look at when selecting ETFs, according to the study. Respondents also cited reputation of the fund sponsor and performance history of the ETF as the other two extremely important criteria they consider in making their investment decision.

What matters most to investors about ETF costs? Investors surveyed say they pay most attention to expense ratios, followed by trade commissions. Thirty-eight percent believe that the ability to trade ETFs commission-free is important, and of this group, 40 percent call it ‘most important’ while the remaining 60 percent say this ability is ‘very important.’ An additional 46 percent say commission-free trades are somewhat important, but not the only factor they consider.

ETF Knowledge is Improving, but There is Room to Grow

While 39 percent claim to be better versed in ETFs than they were last year, there are plenty of investors who still say they do not know enough to make that initial ETF investment. Fifty-three percent of investors who are considering but have not yet purchased an ETF claim that their lack of understanding is the main reason they have not done so. Although 57 percent of those who own ETFs rate their understanding of the products at the intermediate level, a full 63 percent of those considering ETFs classify their knowledge base as ‘novice’.

The five ETF issues that investors want to know more about are:
  • Tax implications of ETFs
  • How to best use ETFs
  • Risks associated with ETFs
  • How to best use sophisticated ETFs
  • ETF costs The study also found that investors were most curious about increasing their understanding of sector ETFs, followed by fixed income and equity ETFs.

    “We’ve made some gains in educating investors, but clearly there is still room to grow,” said Flynn. “At Schwab we’re committed to helping investors at every point on the education spectrum so they can make informed choices about which products are right for them.”

    In addition to its increasingly popular low-cost proprietary ETFs, Schwab offers a host of resources to help clients choose ETFs that fit their investment needs, including the Schwab ETF Select List™; tutorials, research and tools available via Schwab’s online ETF center; and live events at local Schwab branches.

    Commission-free online trading of Schwab ETFs is available to individual investors at Schwab, to the nearly 7,000 independent investment advisors who use Schwab’s custodial services and through Schwab retirement accounts that permit trading of ETFs.

    About the 2012 ETF Investor Study by Charles Schwab

    The 2012 ETF Investor Study by Charles Schwab is an online survey of more than 1,000 U.S. individual investors between the ages of 25-75 with at least $25,000 in investable assets and some familiarity with ETFs. The study was designed to assess attitudes toward and understanding of ETFs. Sixty-three percent of survey respondents own ETFs, holding on average 16 percent of their total portfolios in ETFs. The remaining respondents do not own ETFs, but are considering purchasing one in the next two years.

    Conducted by Koski Research in August 2012, the study has approximately a three percent margin of error. Survey respondents were not asked to indicate whether they had accounts with Charles Schwab. All data is self-reported by study participants and is not verified or validated. Detailed findings can be found at

    Edited by: Ben Geier



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