Despite turbulent markets, a majority of U.S. retail investors are standing by their index funds, with many looking to increase their allocations, according to a new survey.

For 2023, 59% of respondents said they expect to maintain their current level of investment, while another 38% said they have plans to increase their assets in index funds, according to the inaugural FTSE Russell Retail Investor Survey, which focused on index fund use.

One area where the survey revealed a paradox was in small-cap investing, where using an index fund would diversify the higher risk level of the asset class. But 49% of respondents who were small-cap investors said they did it through owning individual small-cap stocks.

For another 39%, this might be one area where they see active management as having an edge, as this group said they invested in actively managed small-cap funds. Just 29% said they used index funds for this asset.

Susan Quintin, head of business management, investment and wealth solutions at the New York offices of the London Stock Exchange Group, which owns FTSE Russell, said that she had been surprised by some of the survey’s findings.

For example, she said, after poor performances in markets across the board in 2022, investors in index funds continue to have a positive outlook on this investment style.

“Despite the fact that investors might not have been pleased with performance in 2022 and believe recession is coming in 2023, they’re satisfied with index funds,” she said. “And many are looking to increase their exposure, but don’t know enough about which one is right for them or how to add it to their portfolio.”

In addition, while assumptions for a long time have been that investors choose index funds for their low cost, that’s not actually true, the survey found.

“Price is not the driver. Diversification, performance and ease of use are,” she said. “Only when they get to the index fund selection fund process does cost become a factor.”

FTSE Russell hired an independent marketing research firm to conduct the survey last November. Participants included 1,000 U.S. retail investors owning stocks, mutual funds or ETFs outside of the workplace.

The survey found that 64% of respondents work with a financial advisor, but of those, only 55% had heard about index funds from their advisor. Of the remaining 45%, two-thirds said they would like their advisor to discuss index funds.

Quintin said there’s obviously room for the index and fund providers to make sure that advisors know how to use index funds effectively in a client’s portfolio.

“Some advisors may not be sure when to use an index fund and when to use an active fund,” she said. “For asset classes that are more commoditized, like U.S. large-cap equities, those are a good place for an index fund. For another asset class, where you can get a little more performance that justifies an active management fee, then an active fund might be a better choice.”

When broken down by wealth level, the survey found that the wealthier an investor was, the more likely they were to use index funds in at least some of their portfolio. Some 40% of respondents with more than $1 million in investible assets currently used index funds, compared to just 18% of respondents with less than $100,000. The top reasons given for not investing in index funds were lack of knowledge about how they work, being unsure about how to choose an appropriate fund and the goal of outperforming the market, not matching it.

But investors at all wealth levels who did use index funds said they were highly satisfied with their performance, leading 77% to say their index funds performed as well or better than other investments, including active management. The top reasons given for sticking with index funds were good performance, broad diversification and ease of use.