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Many investors seek stocks over ETFs to gain sector exposure


More than three out of five investors (62 per cent) prefer buying shares of one or a handful of companies to gain exposure to a sector, as opposed to purchasing a sector-specific fund.

That’s according to E*TRADE’s most recent StreetWise quarterly tracking study of experienced investors which also reveals that about only one out of five investors (21 per cent) prefer buying a sector-specific ETF to gain exposure to a sector.
At only 17 per cent of the total population, the least popular method to gain sector exposure is buying a sector-specific mutual fund.
“Often investors are interested in a specific sector because they’re looking for outperformance or diversification. Amid lofty valuations and recent market highs, many investors may be pursuing best-of-breed sector stocks as a way to help generate returns beyond what the sector indexes typically generate,” says Rich Messina, SVP, Investment Products at E*TRADE Financial. “We’re also seeing many investors using broad index funds—like ETFs or mutual funds—as their portfolio’s foundation, and then turning to other investments, like stocks or sector-specific funds, as satellite positions in their pursuit of higher returns or added diversity.”
Mr. Messina also offered observations into how the preferences vary by age. Nearly half (48 per cent) of the Millennial population prefers to buy shares in a handful of different companies to achieve sector exposure. With their longer time horizons – and perhaps greater tolerance for risk – this generation may deploy individual stocks as satellite positions as they seek superior sector returns.
Nearly three out of ten (27 per cent) Millennials believe buying a sector-specific ETF is the best way to achieve sector diversification – the highest among all age groups. Many Millennials are just starting out in the investing world and likely have less investable capital compared to older generations. Millennials may view ETFs as a cheap and efficient way to build the foundation of their portfolio.
Boomers – unlike younger generations – show the most enthusiasm for sector-specific mutual funds, at 26 per cent. Since mutual funds have been around for several decades, many Boomers may have a greater level of familiarity with these vehicles compared to younger generations.

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