For a growing number of investors, exchange-traded funds (ETFs) are
being embraced as a mainstay of a diversified portfolio. According to
the 2013 ETF Investor Study by Charles Schwab, half of
respondents plan to increase their ETF holdings over the next year – a
22 percent increase over those who said the same in 2012. Nearly one in
ten investors (nine percent) now hold 50 percent or more of their
portfolios in ETFs, more than double the four percent seen last year.
Cost and fees continue to be critical factors when making ETF buying
decisions, but topping expense ratios and trade commissions is the
concern among investors that ETFs could contain hidden fees.
“Demand is up across the board, and investors who own ETFs appear to be
more interested in the product than ever,” said Beth Flynn, vice
president of ETF platform management at Charles Schwab. “We’re seeing
less discussion of ‘if’ and more about ‘how’ investors will buy and use
ETFs. We’re seeing an upward shift in sophistication among ETF
investors, and a hunger to learn more.”
The 2013 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 who have purchased ETFs in the
past two years and/or are considering purchasing ETFs in the next two
years. Similar surveys were conducted in 2012 and 2011, and certain
questions were repeated in 2013 for benchmark purposes.
A leader in the retail ETF market, Charles Schwab had $179.3 billion in
ETFs custodied on its platform as of September 30, 2013. Schwab ETFs™,
including the new Schwab Fundamental Index* ETFs, had $114.2
billion in assets as of September 30, 2013.
Investors Prefer Transparency, Eager for Education
According to the study, investors have a strong reaction to lack of
transparency when it comes to cost: 94 percent say understanding an
ETF’s total cost is important. Interestingly, clarity about a fund’s
redemption fees or other hidden fees is considered the #1 cost factor,
with 71 percent saying it is extremely important. This ranks ahead of
expense ratios at 61 percent and trade commissions at 54 percent.
The ability to trade ETFs commission-free is most or very important to
45 percent of respondents. While 59 percent are inclined to trade ETFs
at the firm offering the most ETFs commission-free, nearly half (48
percent) would not buy a commission-free ETF that assessed a fee for
selling too early.
The study also revealed that some investors are ready to take their
knowledge of ETFs to the next level. Three in ten investors (31 percent)
say they still need to know more about ETFs in order to invest more in
them. Respondents are most interested in learning more about ETFs’ tax
implications, with understanding how to best use them in a portfolio
coming in a close second.
“Investors are ready to move beyond a rudimentary understanding of ETFs
and get into the nitty gritty details on things like costs and taxes,”
said Flynn. “We’re turning a corner on ETF education which is very good
news.”
Value the Flexibility, in it for the Long Haul
The top benefit of ETFs, according to study participants, is that they
can be bought and sold like stocks. When given a choice of nicknames for
ETFs, the #1 answer – selected by 57 percent of respondents – was
“Easily Traded Funds1.”
That said, 53 percent said they believe ETFs are best suited for those
in the market for the long term. This came in well ahead of those who
felt they were well-suited for active traders at 40 percent.
In terms of which ETFs are in favor with investors these days, sector
funds rank first with equity and international ETFs rounding out the top
three. Among specialty ETFs specifically, respondents are most
interested in purchasing commodity funds.
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 the ETF
Education Exchange; and live events at local Schwab branches.
In addition to the 21 proprietary ETFs from Charles Schwab Investment
Management, which can be bought and sold commission-free online in
Schwab accounts, Schwab ETF OneSource offers investors and advisors
access to the most commission-free ETFs anywhere in the industry2.
Commission-free online trading 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 2013 ETF Investor Study by Charles Schwab
The 2013 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. Fifty-four percent of survey respondents own ETFs, holding on
average 19 percent of their total portfolios in ETFs.
Conducted by Koski Research in August 2013, 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.
About Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of challenging
the status quo in our industry, innovating in ways that benefit
investors and the advisors and employers who serve them, and championing
our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com.
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Disclosures
Through its operating subsidiaries, The Charles Schwab Corporation
(NYSE: SCHW) provides a full range of securities brokerage, banking,
money management and financial advisory services to individual investors
and independent investment advisors. Its broker-dealer subsidiary,
Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; compliance and trade monitoring solutions; referrals to
independent fee-based investment advisors; and custodial, operational
and trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles Schwab
Bank (member FDIC and an Equal Housing Lender), provides banking and
lending services and products. More information is available at www.schwab.com
and www.aboutschwab.com.
1 Please note that trading ETFs can involve the payment of
commissions.
2 Conditions Apply: Trades in ETFs available through Schwab
ETF OneSource™ (including Schwab ETFs™) are available without
commissions when placed online in a Schwab account. Service charges
apply for trade orders placed through a broker ($25) or by automated
phone ($5). An exchange processing fee applies to sell transactions.
Certain types of Schwab ETF OneSource transactions are not eligible for
the commission waiver, such as short sells and buys to cover (not
including Schwab ETFs). Schwab reserves the right to change the ETFs we
make available without commissions. All ETFs are subject to management
fees and expenses. Please see Charles
Schwab Pricing Guide for additional information.
Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose
Value
Investors should consider carefully information contained in the
prospectus, including investment objectives, risks, charges, and
expenses. You can request a prospectus by
calling Schwab at 800-435-4000. Please read the prospectus carefully
before investing.
Investment returns will fluctuate and are subject to market volatility,
so that an investor’s shares, when redeemed or sold, may be worth more
or less than their original cost. Unlike mutual funds, shares of ETFs
are not individually redeemable directly with the ETF. Shares are bought
and sold at market price, which may be higher or lower than the net
asset value (NAV).
Commodity-related products carry a high level of risk and are not
suitable for all investors. Commodity-related products may be extremely
volatile, illiquid and can be significantly affected by underlying
commodity prices, world events, import controls, worldwide competition,
government regulations, and economic conditions.
Since a sector fund is typically not diversified and focuses its
investments on companies involved in a specific sector, the fund may
involve a greater degree of risk than an investment in other mutual
funds with greater diversification
* ’Schwab is a registered trademark of Charles Schwab & Co., Inc.
‘Fundamental Index’ is a registered trademark of Research Affiliates, LLC
International investments are subject to additional risks such as
currency fluctuation, geopolitical risk and the potential for illiquid
markets.
Charles Schwab & Co., Inc. receives remuneration from third-party ETF
companies participating in Schwab ETF OneSource™ for record keeping,
shareholder services and other administrative services, including
program development and maintenance.
Charles Schwab Investment Management, Inc. is the investment advisor for
Schwab ETFs and an affiliate of the Charles Schwab Corporation.
Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO).
SIDCO is not affiliated with The Charles Schwab Corporation or its
affiliates. Learn more at schwab.com/SchwabETFs.
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© Copyright 2013 The Charles Schwab Corporation
Copyright Business Wire 2013