The fast-growing ETF world may be too big for most consumers to understand, according to a recent study by New York-based E*TRADE.
According to E*TRADE’s quarterly StreetWise study, investors are most likely to struggle with the broad ETF selection, product complexity and the tracking differences between an ETF and its underlying assets.
When investors were asked what concerns them most about ETF investing, 53 percent of the study’s respondents named product selection. Parsed further, that issue was more worrisome to baby boomers over the age of 55 (64 percent) than for millennials ages 25 to 34 (53 percent).
Complexity was the second-most commonly noted concern. Forty-one percent of all respondents said they were worried that ETFs would not perform as expected due to the complexity of their strategies. Again, that was a bigger hang-up for boomers (42 percent) than millennials (38 percent).
Tracking error was named by 35 percent of all investors as a top ETF concern. This was a bigger issue for millennials (37 percent) than boomers (33 percent).
To a lesser extent, investors were also concerned about an ETF’s bid-ask spread and it’s potential for being delisted. These concerns were more prevalent among millennials than baby boomers.
Investors were most interested in U.S. market index, dividend, and sector and industry specific ETFs. While baby boomers were more interested in dividend, market index and sector ETFs than younger investors, millennials were more interested in fixed income, commodity and style/market cap ETFs than their elders.
The study was conducted among 904 self-directed investors between Jan. 1 to Jan 10, 2017.