E*TRADE Study of Experienced Investors Bucks the Traditional Understanding of ETF Use

E*TRADE Securities

11/22/16
Experienced Investors ETF Study - image
Traditionally thought of as buy-and-hold investing products, in reality many ETFs are created to be—and exclusively used as—vehicles for active traders

 

E*TRADE Financial Corporation today announced results from the most recent wave of StreetWise, E*TRADE’s quarterly tracking study of experienced investors. Results indicate that many investors do not equate ETFs with long-term investing:

  • Two of out five investors believe ETFs are better suited for short-term trading than long-term investing.
  • Only about one in four investors believe ETFs are entirely or mostly better suited for long-term investing over short-term trading.
  • Millennials are more likely than Boomers to gravitate towards the less popular, yet more opportunistic ETFs like foreign currency, derivative, and inverse ETFs.
  • The top three types of ETFs selected by the total surveyed population remained consistent q/q with U.S. market index ETFs, dividend ETFs, and sector- and industry-specific ETFs.

“While ETFs are traditionally associated with long-term investing solutions that mirror indexes, the data suggests a far more nuanced picture,” said Rich Messina, SVP of Investment Product Management at E*TRADE Financial. “Many investors are also using ETFs opportunistically for short-term trading strategies. Additionally, as these products are increasingly being developed to serve a wide variety of purposes, investors are wise to research them closely to learn how they might fit into their long-term investing and short-term trading goals.”

Mr. Messina offered the following observations on ETF strategies:

  • U.S. market index ETFs remain popular for investors and traders alike. U.S. market index ETFs remain the most popular ETF sector for the second straight quarter, according to the survey. These ETFs often serve as the core foundation of a balanced portfolio, offering investors broad access to the U.S. market, and often come with relatively low expense ratios. However, while U.S. market index ETFs are often used as passive vehicles, they are also among the most frequently traded,1 favored by active investors for their liquidity and efficiency.
  • ETF usage is not either/or. Three out of five investors feel ETFs are either somewhat long-term or somewhat short-term vehicles, which suggest many may be employing a hybrid strategy, in which they utilize passive ETFs to capture general market returns, as well as vehicles like sector, volatility, and style ETFs to capitalize on short-term themes.
  • For younger investors, time is on their side to seize opportunity. Foreign market index, foreign currency, derivative, and inverse ETFs are more popular among younger investors than older investors. This could be attributable in part to the higher risk tolerances developed by some younger investors as a result of their longer time horizons.

http://www.marketwatch.com/tools/screener?exchange=Nyse&report=MostActive

About the Survey

This wave of the survey was conducted from October 1 to October 10 of 2016 among an online U.S. sample of 954 self-directed active investors who manage at least $10,000 in an online brokerage account. The survey has a margin of error of ±3.18 percent at the 95 percent confidence level. It was fielded and administered by ResearchNow. The panel is broken into thirds of active (trade more than once a week), swing (trade less than once a week but more than once a month) and passive (trade less than once a month). The panel is 65 percent male and 35 percent female with an even distribution across online brokerages, geographic regions, and age bands.

Referenced Data

  If you had to choose, do you believe that ETFs are more for short-term trading or long- term investing strategies?

 

TOTAL Q4'16

AGE:
25–34

AGE:
35–54

AGE:
55+

 Long-term (Net)

60%

59%

62%

61%

   Entirely long-term

3%

4%

2%

2%

   Mostly long-term

23%

23%

25%

22%

   Somewhat long-term

34%

32%

35%

37%

   Somewhat short-term

28%

29%

28%

26%

   Mostly short-term

10%

10%

9%

12%

   Entirely short-term

2%

2%

1%

1%

 Short-term (Net)

40%

41%

38%

39%

 

  In what types of ETFs of are you most interested?

 

TOTAL  Q4'16

TOTAL  Q3'16

AGE: 25–34

AGE: 35–54

AGE: 55+

 U.S. market index ETFs

48%

48%

40%

50%

54%

 Dividend ETFs

42%

43%

34%

44%

51%

 Sector- and industry-specific ETFs

30%

31%

27%

30%

39%

 Bond ETFs

22%

20%

22%

22%

17%

 Foreign market index ETFs

19%

15%

24%

19%

14%

 Commodity ETFs

18%

19%

19%

19%

12%

 Style or market cap ETFs

13%

13%

15%

12%

13%

 Actively managed or smart beta ETFs

13%

12%

14%

13%

13%

 Leveraged ETFs

12%

11%

15%

14%

6%

 Foreign currency ETFs

12%

10%

15%

12%

4%

 Derivative ETFs

9%

7%

15%

9%

3%

 Inverse ETFs

8%

8%

12%

8%

3%

 ETNs (exchange-traded notes)

7%

6%

8%

6%

3%

 Other (i.e., vol. ETFs, ETFs of ETFs, equal weight ETFs)

2%

3%

3%

1%

3%

“Millennials” defined as age 25–34 // “Gen X” defined as age 35–54 // “Baby Boomers” defined as age 55+