ETF Investors Anticipate a Turbulent Market and Look to ETFs to Ride Out the Storm

Two-thirds of ETF investors expect to increase allocation to ETFs in 2019

SAN FRANCISCO--()--The majority of ETF investors (61%) expect market volatility to increase in the next six months, and close to half (44%) say they will put more money into ETFs as a result, according to the ninth annual ETF Investor Study by Charles Schwab & Co., Inc., a survey of 1,500 investors who have bought or sold an ETF within the past two years.

“After a decade of market gains, ETF investors now see clouds on the horizon and are planning to use ETFs to help them weather the storm,” said Kari Droller, vice president of third-party mutual fund and ETF platforms at Schwab. “It’s clear that ETFs serve a unique role for investors, as the foundation of a portfolio and also as a vehicle that enables them to be nimble.”

When asked about the ETF asset classes in which they plan to invest over the next year, domestic equity ETFs are the top pick (63% of respondents). For sector ETFs, more than two-thirds of ETF investors (69%) say technology is their top choice, a sentiment that is particularly popular among Millennials (74%). As investors look ahead at choppier markets, nearly three-quarters of those surveyed say now is a good time to invest in fixed income ETFs.

Top three asset classes for investment over next year

       

All ETF Investors
n=1,000

     

Millennials
(age 25-38)
n=500

     

Gen X
(age 39-54)
n=285

     

Boomers
(age 55-73)
n=226

Domestic equity       63%       64%       60%       62%
Bonds/Fixed income       61%       72%       56%       43%
Real assets       58%       65%       61%       38%

Top three sectors for investment over next year

       

All ETF Investors

      Millennials       Gen X       Boomers
Technology       69%       74%       71%       56%
Financial services       50%       59%       48%       35%
Real estate       45%       55%       43%       28%

Fixed Income

                               
       

All ETF Investors

      Millennials       Gen X       Boomers

Believes now is a good
time to invest in fixed
income ETFs

      74%       86%       74%       50%
                       

Volatility and ETFs

Already, 51 percent of respondents say they’ve increased their allocations to ETFs in the past six months after increased market volatility, and expectations for volatility are also likely impacting their plans for the coming year. Among the subset of investors who anticipate increased volatility, 73 percent expect to increase their ETF investments in the next year and 37 percent would consider placing their entire investment portfolio, excluding cash, into ETFs in the next year.

Impact of volatility expectations on ETF Sentiment

       

Total
N=1,000

     

Investors who
expect market
volatility will
increase in next
six months
n=606

     

Investors who
expect market
volatility will
decrease in next
six months
n=71

     

Investors who
expect market
volatility to stay
the same in the
next six months
n=323

Expect to increase ETF
investments in next year

      68%       73%       69%       57%

Would consider placing
their entire investment
portfolio (excluding cash
holdings) in ETFs in next
year

      31%       37%       20%       21%
                       

ETF enthusiasm continues to grow

The market environment aside, ETF investors continue to look to ETFs to meet their investing goals. About two-thirds (68%) of all ETF investors surveyed plan to increase ETF investments in the next year, up from 54 percent in 2018. Sixty-three percent expect ETFs to be the primary investment type in their portfolios in the future, up from 55 percent in 2018.

ETF Sentiment

      2018       2019
See ETFs as primary investment type in future       55%       63%
ETFs are investment vehicle of choice       72%       79%

ETF Holdings

Percentage of portfolio already in ETFs       34%       36%

Percentage that would go into ETFs if respondents had another $100,000
to invest (average)

      48%       54%

ETF Behavior

Expect to increase ETF investments in next year       54%       68%

Would consider placing their entire investment portfolio in ETFs
(excluding cash holdings)

      53%       63%
 

A deeper look by generation: Millennials lead the pack, but don’t count out Gen X

Millennials maintain their position as the most enthusiastic ETF investors by generation, but Gen X is not far behind. Forty-two percent of Millennial portfolios are currently in ETFs, on average, with Gen X portfolios at 34 percent.

Looking to the future, four in five Millennials and three in five Gen Xers expect ETFs to be the primary investment in their portfolios. Millennials are also the most likely to consider placing their entire portfolio in ETFs in the next year (44%), compared to 26 percent of Gen Xers and only 9 percent of Boomers.

ETF Sentiment

       

All ETF
Investors
n=1,000

     

Millennials
(age 25-38)
n=500

     

Gen X
(age 39-54)
n=285

     

Boomers
(age 55-73)
n=226

See ETFs as primary investment type in future       63%       79%       59%       37%
ETFs are investment vehicle of choice       79%       90%       80%       55%

ETF Holdings

Average percentage of portfolio already in ETFs

      36%       42%       34%       24%

Percentage that would go into ETFs if
respondents had another $100,000 to invest
(average)

      54%       61%       53%       40%

ETF Behavior

Increased allocations to ETFs in past six months
after increased volatility

      51%       64%       48%       28%
Expect to increase ETF investments in next year       68%       78%       71%       43%

Would consider placing their entire investment
portfolio in ETFs in next year (excluding cash
holdings)

      31%       44%       26%       9%
                       

A discerning eye: ETF investors care about cost, but that’s not all

ETF investors say total cost, reputation of the ETF provider and how well an ETF tracks its index are the most important considerations when choosing an ETF. When evaluating brokerages that offer commission-free ETFs, investors look for a broad selection of ETF categories and no additional fees before anything else.

Extremely important when evaluating ETFs

       
Total cost (commissions, expense ratio, bid/ask spread)       59%
Reputation of ETF provider       58%
How well it tracks to its index       57%

Extremely important when evaluating brokerages that offer commission-
free ETFs

       
Broad selection of ETF categories       56%
No additional fees (e.g., short-term redemption fees)       56%
Broad selection of ETF providers       52%

To review the full study, click here.

About the Study

The 2019 ETF Investor Study by Schwab is the ninth installment of an annual online survey of 1,500 individual investors between the ages of 25 and 75 with at least $25,000 in investable assets who have purchased or sold ETFs in the past two years. Conducted by Logica Research from February 20 – March 4, 2019, the study has approximately a three percent margin of error. Survey respondents were not asked to indicate whether they had accounts with Schwab. All data is self-reported by study participants and is not verified or validated.

About Charles Schwab

At 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.

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. (Schwab), 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.

Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value

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 of ETFs are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

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(0519-909F)

Contacts

Erin Montgomery
Charles Schwab
Phone: 212-403-9271
Erin.Montgomery@schwab.com

Release Summary

Two-thirds of ETF investors expect to increase allocation to ETFs in 2019 according to the ninth annual ETF Investor Study by Charles Schwab.

Contacts

Erin Montgomery
Charles Schwab
Phone: 212-403-9271
Erin.Montgomery@schwab.com