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Aggressive, knowledgeable and wealthy investors find ETFs an attractive alternative to mutual funds


High net worth (HNW) investors and investors who are knowledgeable about their investment choices are purchasing exchange-traded funds at a higher rate than other investors, according to Exchange Traded Funds Investing by the HNW, a 2013 Spectrem Group report.

ETFs are attractive to investors as a way to diversify their portfolio, and because they have lower fees and expenses. The Spectrem Group report details how investors view ETFs, why they are purchasing them, and how they are compared to more traditional investments such as mutual funds.
ETFs are becoming more mainstream as an investment opportunity.
According to the report, 28 per cent of investors own ETFs, up from 16 per cent in 2008; 47 per cent of investors in the ultra high net worth (USD5m to USD25m not including primary residence) segment own ETFs. Forty-five per cent of investors who consider themselves knowledgeable about their investment choices own ETFs. In addition, 48 per cent of investors who own ETFs do so because of low operating expenses, while 44 per cent have invested in ETFs on the recommendation of their financial advisor.
"Although ETFs have been in existence for 20 years, they are still considered a relatively new product, and therefore are still making inroads into wealthy investors’ portfolios," says George H Walper Jr, president of Spectrem Group.
Because ETFs are not as well understood as mutual funds, conservative investors tend to avoid purchasing ETFs, while aggressive investors are choosing to invest in them. Thirty-six per cent of investors who identify themselves as aggressive own ETFs, versus only 14 per cent of conservative investors.
"The risk factor also explains why wealthier investors are more likely to purchase ETFs," Walper says. "They can afford to make initial investments in alternative products."

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