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Demographics cited as support for the growth of the ETF ecosystem


Mike Venuto and the team behind the TETF.Index writes that one of the trends supporting the growth of the ETF ecosystem is demographics.

Many headlines report Millennials are choosing ETFs as their investment vehicle of choice more than any other generation, Venuto says. “Most attribute this trend to ETF client alignment growth factors like low costs, transparency and tax efficiency. However, one of the most substantial and overlooked sources is trust.

“Millennials have established trust in new ideas and concepts like AirBnB and Uber quicker than other generations because of the low cost, self-service, and promptness. These are very similar to the benefits of ETFs.”

To dig deeper into the Uber example, Venuto says that millennials are beginning to have just as much trust, if not more, in ride-sharing drivers instead of traditional taxis because you can see a driver’s rating. “Bad ratings equate distrust, so Uber drivers must uphold a strong user rating. Along the same lines, Millennials have grown up during a time with mistrust in the markets and investment firms.

“The more growth the ETF market experiences, the more faith and trust is established to all investors of each generation. Millennials are pioneering how far they can trust technology as the financial sector innovates with new ETFs.”

Quoting Jason Browne of the Chicago Tribune, Venuto writes: “Millennials have grown up in an era where there has been some mistrust in the markets and some big bear markets. Large-cap indexes have been tough to beat over the past eight years so low-cost indexing has been attractive. It certainly has put a real tailwind behind ETFs as an investment option.”

Another reason young investors are trusting ETFs is that they are getting many of the same benefits as mutual funds except with more flexibility. Additionally, most ETFs avoid promoting misaligned incentives. Active managers make investment decisions to outperform a benchmark; which often effects their compensation and career. Passive indexes simply provide a process to capture an exposure without the incentives to make rash or self-serving decisions.

The TETFindex seeks to monitor and capture the growth of the ETF ecosystem, and starts by building a universe of ETF companies. The firm looks at any public company above USD200 million in Market Cap that participates in the industry. This includes ETF Issuers, Index and Data companies, Exchanges, Liquidity providers and ETF Service providers.

In summary, Venuto’s view is that the seeming reasons of ETF popularity among Millennial investors are low cost, diversification, and transparency. However, the underlying reason is trust. The ETF concept and industry are generating more and more trust as growth remains consistent, Venuto concludes.  

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