Exchange-traded funds have a strong fan base among RIAs and individual investors alike.
According to the recently released 2016 “ETF Investor Study” by San Francisco-based Charles Schwab, RIAs have just over one-third of their investments in ETFs, and believe that proportion could increase to more than 44 percent in five years.
If given an extra $100,000 to invest, RIAs and individual investors alike responded that they would allocate more than one-third of that money to ETFs.
Over half of the RIAs surveyed said that they’ve increased their allocations to ETFs over the past year.
Most RIAs, 92 percent, say that ETFs have had a positive impact on the way they invest, with 44 percent saying the impact has been substantial.
In the next 12 months, 54 percent of RIA respondents said that their investments in ETFs would increase, with nearly half of the advisors, 48 percent, saying that ETFs would eventually become the dominant investment type in the portfolios they manage.
Yet for the time being, ETFs will share the load—55 percent of the RIA respondents said that mutual funds and ETFs play an equally important role in their clients’ portfolios, and around 30 percent said that they would consider using ETFs to replace individual stocks. Even fewer RIAs, around 25 percent, said they would use ETFs to replace individual bonds.
RIAs told Schwab that the most important factors they consider when choosing an ETF are low expense ratios, which were named by 79 percent of RIAs; total cost, named by 77 percent; and liquidity or trading volume, which was named by 72 percent.
Individual investors, on the other hand, hold a little more than 22 percent of their total portfolios in ETFs, according to the study. Over the past year, 44 percent of individual investors say they’ve increased their investments in ETFs.
Both advisors and individual investors said they were highly dependent on ETF providers for information about the products.