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
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 www.aboutschwab.com/press/research/.
About Charles Schwab
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.7 million active brokerage accounts, 1.5 million corporate retirement plan participants, 838,000 banking accounts, and $1.86 trillion in client assets. The company was ranked "Highest in Investor Satisfaction With Self-Directed Services" in the 2012 US Self-Directed Investor Satisfaction StudySM from J.D. Power and Associates. Through its operating subsidiaries, the company 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; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides trust and custody services, banking and mortgage services and products. Investment products offered by Charles Schwab & Co., Inc. are not insured by the FDIC, are not deposits or obligations of Charles Schwab Bank, and are subject to investment risk, including the possible loss of principal invested. More information is available at www.schwab.com and www.aboutschwab.com. (1012-6377)
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© 2012 Charles Schwab & Co., Inc. Member SIPC
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**Restrictions Apply: Online trades of Schwab ETFs™ are commission-free at Schwab, while trades of third-party ETFs are subject to commissions. Broker-Assisted and Automated Phone trades are subject to service charges. Minimum $1,000 deposit is required to open most Schwab brokerage accounts. Waivers may apply. See the Charles Schwab Pricing Guide for details. All ETFs are subject to management fees and expenses.
1 This claim is based on expense ratio data comparisons between Schwab and non-Schwab ETFs in their respective Lipper categories. Expense ratio data for non-Schwab ETFs were obtained from the funds' prospectuses, data pulled as of 9/4/12. Expense ratio data for Schwab ETFs are as of 9/20/12. ETFs in the same Lipper category may track different indexes, have differences in holdings, and show different performance. Competitors may offer more than one ETF in a Lipper category. Expense ratios are subject to change. Information has been sourced from Lipper, a Thomson Reuters Company ("Lipper Content"). All such information is protected by copyright: © 2012 THOMSON REUTERS. All rights reserved.
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 1-800-435-4000 or by visitingwww.schwabetfs.com. 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.
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 ETFs are distributed by SEI Investments Distribution Co. (SIDCO). SIDCO is not affiliated with The Charles Schwab Corporation or any of its affiliates.
Alyson Nikulicz, 212-403-9240
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