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Low cost of ETFs very important to investors, survey shows

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Morningstar’s fifth online survey of UK investors into the appetite, understanding and use of exchange-traded funds shows the ever-increasing importance to investors of one of the hallmark attributes of ETFs – their low costs.

 
The survey captured a broad range of investors who are either interested in or already investing through ETFs. There were 543 individual investor and 87 professional investor respondents to the survey.  
                                                
The low costs of ETFs continue to resonate, with 91 per cent of current ETF investors citing ETFs’ low costs as being either a “very important” or “important” attribute, compared to 89 per cent last year.
 
Prospective ETF users are also putting greater focus on ETFs’ low costs, with 71 per cent now citing this attribute as being “very important”, compared to 57 per cent last year.
 
Some 85 per cent of survey participants prefer physical-replication funds over synthetic-replication funds.
 
For all respondents who currently invest in ETFs, the majority holds less than 20 per cent of the value of their overall portfolio in ETFs; eight per cent of professional investors and 10 per cent of individual investors, respectively, have an ETF portfolio weighting of greater than 50 per cent.
 
Intraday trading has grown as an important feature of ETFs among both current and prospective ETF investors, with 40 per cent and 21 per cent, respectively, citing ETFs’ intraday liquidity and trading as being “very important”. These results compare to 28 per cent and 16 per cent, respectively, from one year ago.
 
More than a quarter of respondents identified iShares as the best-publicised ETF brand, followed by Vanguard.
 
Hortense Bioy, director of European passive fund research at Morningstar, says: “In a world of low expected returns in all asset classes, it comes as no surprise to see greater focus on costs, and costs associated with ETF investing are no exception. The Retail Distribution Review and entrance of ultra-competitive providers like Vanguard in the ETF marketplace, have clearly contributed to further raising the UK investors’ awareness of the low cost nature of ETFs. Meanwhile, the growing appeal of ETFs’ intraday trading suggests a better understanding of the flexibility that ETFs offer over other types of passive investment. There is, however, still a need for education, especially among those prospective ETF investors.”

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