The Generational Love Affair with ETFs

A surprising generational gap has recently emerged—in exchange-traded funds. A recent ETF Investor Study revealed that ETFs account for 41% of portfolio allocation among millennials—compared to just 17% for baby boomers.
Perhaps more surprising, 61% of millennials surveyed express that they expect to increase ETF holdings over the next 12 months—compared to 25% of boomers. The gap becomes, even more, prevalent when looking at the overall role that ETFs play in client’s portfolios—70% of millennials view ETF as a core part of their investing in future portfolios, only 17% of baby boomers hold that same view.
While ETFs are becoming ever more popular among investors overall (21% of portfolios currently include ETFs, compared to 10% in 2012), millennials tend to be rather new to investing with a clean slate—leaving them more open to the latest trends in investment products.
Even more interesting, the investors surveyed are anticipating that ETFs are going to account for at least 25% of their portfolio allocation within the next five years. 34% are expecting that ETFs are going to become a core element of their portfolios in the future.
A shift in views is also leading to more investors expecting to use ETFs differently—they’ve conventionally been used to track simply indexes, but 61% of investors say that they would consider investing in stock-based ETFs instead of purchasing individual stocks at a future date, and 55% say that they would contemplate substituting fixed income ETFs for individual bonds. The interesting part? The numbers for Millennials were even higher than that: 77% and 69% for each.
ETFs are composed of multiple securities in an index, offering more diversification than individual security products. An increasing number of ETFs offer a more nuanced portfolio for clients—such as currency hedged exposures and weightings that are not focused around capitalization, but on other factors—like value and momentum.
Lower fees could also attract even more investors across the board. 41% of investors report that they believe commission-free ETF products are a ‘game-changing development.’