Many investors do not equate exchange traded funds (ETFs) with long-term investing, with two out of five investors believing ETFs are better suited for short-term trading.
That’s according to E*TRADE’s latest quarterly tracking study of experienced investors, which also finds that only about one in four investors believe ETFs are entirely or mostly better suited for long-term investing over short-term trading.
In addition, Millennials are more likely than Boomers to gravitate towards the less popular, yet more opportunistic ETFs like foreign currency, derivative, and inverse ETFs, while the top three types of ETFs selected by the total surveyed population has remained consistent with US market index ETFs, dividend ETFs, and sector- and industry-specific ETFs.
“While ETFs are traditionally associated with long-term investing solutions that mirror indexes, the data suggests a far more nuanced picture,” says Rich Messina, senior vice president of investment product management at E*TRADE Financial. “Many investors are also using ETFs opportunistically for short-term trading strategies. Additionally, as these products are increasingly being developed to serve a wide variety of purposes, investors are wise to research them closely to learn how they might fit into their long-term investing and short-term trading goals.”
US market index ETFs remain the most popular ETF sector for the second straight quarter, according to the survey. These ETFs often serve as the core foundation of a balanced portfolio, offering investors broad access to the US market, and often come with relatively low expense ratios. However, while US market index ETFs are often used as passive vehicles, they are also among the most frequently traded, favoured by active investors for their liquidity and efficiency.
The study also found that three out of five investors feel ETFs are either somewhat long-term or somewhat short-term vehicles, which suggest many may be employing a hybrid strategy, in which they utilise passive ETFs to capture general market returns, as well as vehicles like sector, volatility, and style ETFs to capitalise on short-term themes.
In addition, foreign market index, foreign currency, derivative, and inverse ETFs are more popular among younger investors than older investors. This could be attributable in part to the higher risk tolerances developed by some younger investors as a result of their longer time horizons.