The biggest challenge among ETF investors is
likely also the most fundamental: choosing which to purchase
E*TRADE Financial Corporation (NASDAQ:ETFC) today announced
results from the most recent wave of StreetWise, E*TRADE’s
quarterly tracking study of experienced investors. Results
highlight what is most likely to keep investors up at night when
investing in exchange-traded funds (ETFs). The top three concerns
are:
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1. Choosing the right ETF. With roughly 2,0001 ETFs to
choose from, and more coming to market at a rapid pace, investors
may be beginning to feel overwhelmed.
2. The complexity of ETFs. Investors can be challenged
with understanding the increasingly complex strategies providers
are bringing to the market as they seek to deliver on both wide and
narrow objectives alike. Given this complexity, investors are
concerned that the fund’s actual performance may not align with
expectations.
3. The tracking difference between the ETF and its underlying
assets. Many ETFs aim to mirror the returns of a specific
index. Yet in some cases ETF returns can lag the index’s, which can
come as an unwanted surprise.
“ETFs have experienced extraordinary growth in recent years,
allowing investors easy access to virtually any asset class and
investing strategy,” said Rich Messina, SVP of Investment Products
at E*TRADE Financial. “With more choices than ever before, it’s no
surprise that investors can experience selection fatigue. Before
investing in any ETF, investors are wise to research the underlying
positions of the ETF, the bid-ask spread, and the market
capitalization, which can go a long way in helping to reduce
concerns. There are many tools available to help investors. For
example, at E*TRADE we offer a comprehensive screener that can sort
by rating, category, characteristics, and commission-free status so
investors can choose the funds that may be right for their
objectives and risk tolerance.”
Mr. Messina also offered some observations on how ETF concerns
can vary by age based on survey findings:
- Millennials are more concerned than
other age groups about delisting. This group is significantly
more concerned about their ETFs getting delisted; however, it
hasn’t dissuaded Millennials from gravitating toward less
traditional ETFs like commodity, style, foreign currency,
derivative, or inverse funds.
- Boomers appear to be more concerned
about choice. Boomers are most likely to gravitate to the types
of ETFs that can serve as the bedrock of a retirement portfolio,
such as U.S. market index and dividend funds. Given the critical
role these funds can play in a retiree’s investment mix, it is
understandable that this age group tends to be more sensitive about
picking the right ones.
- Gen Xers are more likely to look
overseas and to smart beta for their fund selection. While Gen
Xers show similar interest in mainstream ETFs like U.S. market
index and dividend ETFs as other age groups, they show greater
interest in foreign market index ETFs and smart beta ETFs than
Boomers and Millennials.
1. Source: E*TRADE’s ETF Screener, which allows customers to
evaluate and compare virtually every ETF on the market
Visit E*TRADE’s Newsroom for the full Q1’17 StreetWise study
results.
E*TRADE aims to enhance the financial independence of traders
and investors through a powerful digital offering and professional
guidance. To learn more about E*TRADE’s trading and investing
platforms and tools, visit etrade.com.
For useful trading and investing insight from E*TRADE, follow
the company on Twitter, @ETRADE.
About the Survey
This wave of the survey was conducted from January 1 to January
10 of 2017 among an online U.S. sample of 904 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
Research Now. 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
Which of the following concerns you the most about
investing in ETFs?
Age Total 25–34 35–54
55+ Choosing the right one 53% 43% 52% 64%
Will not perform as expected because the strategy is more complex
than it appears 41% 38% 41% 42% A tracking difference between the
ETF and the index it means to follow 35% 37% 32% 33% Large 'bid-ask
spread' when buying and selling 28% 31% 30% 21% The ETF getting
delisted or liquidated 22% 36% 21% 10% Other
2% 0% 3% 3%
In what types of ETFs are you most interested? Age
Total 25–34 35–54 55+ U.S. market index
48% 41% 49% 54% Dividend ETFs 40% 32% 39% 50% Sector- and
industry-specific ETFs 28% 22% 28% 36% Foreign market index 19% 17%
24% 15% Bond ETFs 18% 20% 18% 16% Commodity ETFs 18% 29% 17% 10%
Style or market cap ETFs 17% 23% 13% 12% Actively managed or smart
beta ETFs 13% 13% 15% 11% Leveraged ETFs 10% 14% 11% 6% Foreign
currency 10% 19% 11% 2% Derivative ETFs 10% 16% 10% 3% Inverse ETFs
8% 14% 7% 4% ETNs (exchange-traded notes) 7% 10% 5% 5% Other (i.e.
Vol ETFs, ETFs of ETFs, equal weight ETFs) 3%
2% 5% 1%
“Millennials” defined as age 25–34 //
“Gen X” defined as age 35–54 // “Baby Boomers” defined as age
55+
About E*TRADE Financial and Important Notices
E*TRADE Financial and its subsidiaries provide financial
services including online brokerage and banking products and
services to retail customers. Securities products and services,
including ETFs, are offered by E*TRADE Securities LLC (Member
FINRA/SIPC) and OptionsHouse (Member FINRA/SIPC/NFA). Managed
Account Solutions are offered through E*TRADE Capital Management,
LLC, a Registered Investment Adviser. Bank products and services
are offered by E*TRADE Bank, a Federal savings bank, Member FDIC,
or its subsidiaries. More information is available at
www.etrade.com.
The information provided herein is for general informational
purposes only and should not be considered investment advice. Past
performance does not guarantee future results.
E*TRADE Financial, E*TRADE, the E*TRADE logo, and OptionsHouse
are trademarks or registered trademarks of E*TRADE Financial
Corporation. ETFC-G
© 2017 E*TRADE Financial Corporation. All rights reserved.
E*TRADE Financial Corporation and Research Now are separate
companies that are not affiliated. E*TRADE Financial Corporation
engages Research Now to program, field, and tabulate the study.
About Research Now
Research Now Group, Inc. is a global leader in digital research
data for better insights and business decisions. The company
provides world-class research data solutions that enable better
decisions and better results for its 3,000 market research,
consulting, media, and corporate clients through access to over 11
million deeply-profiled business professionals and consumers in
more than 40 countries. Research Now operates globally with
locations in the Americas, Europe, the Middle East, and
Asia-Pacific, and is recognized as the quality, scale, and customer
satisfaction leader in the market research industry. For more
information, please go to www.researchnow.com.
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