Schwab Study Finds 22% Rise in Demand for ETFs

Nearly One in Ten Investors Now Hold at Least 50 Percent of their Portfolios in ETFs

Thursday, October 3, 2013 6:00 am PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW
"Demand is up across the board, and investors who own ETFs appear to be more interested in the product than ever"

SAN FRANCISCO--(BUSINESS WIRE)--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 $14.2 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. Follow us on Twitter, Facebook, YouTube, LinkedIn and our Schwab Talk blog.

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

Contact:

Charles Schwab
Alison Wertheim, 415-667-0475
alison.wertheim@schwab.com
or
The Neibart Group
David Neibart, 718-875-4198
dneibart@neibartgroup.com

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