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Boomers missing out on ETF revolution, says BlackRock Survey

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Baby Boomers (aged 52-70) are in their peak investing years, but they lag behind their children and parents when it comes to using exchange traded funds (ETFs), according to data released by BlackRock.

The BlackRock ETF Pulse Survey, which polls advised and self-directed individual investors, found that only 27 per cent of Boomers invested in ETFs, compared to 42 per cent of Millennials (21-35) and 37 per cent of Silvers (71+).
 
“Boomers, who came of age during one of the most extended bull markets in memory, may still be holding onto a stock-picking mentality,” says Martin Small, head of US iShares at BlackRock. “They may not realise that ETFs are as easy to trade as stocks and available in virtually every market segment imaginable. As a result, many pre-retirees and investors in their early years of retirement may be overlooking the ETF revolution.”
 
Their children, and parents, however, are purchasing ETFs in record numbers. Millennials saw the biggest jump in ownership, with 42 per cent compared to 33 per cent last year. Silvers also had a strong uptick in ETF adoption, nearly doubling to 37 per cent versus 22 per cent last year. Usage among women increased to 30 per cent from 23 per cent.
 
The survey also reveals continued record adoption of ETFs overall, as one-in-three investors now use ETFs, up from one-in-four last year. The number of investors set to buy ETFs in the next year spiked to 62 per cent, from 52 per cent last year, with Millennials and Gen Xers (aged 36-51) leading the way (at 85 per cent and 64 per cent, respectively).
 
And, for those who already own ETFs 88 per cent plan to continue or increase their use of ETFs, embracing ETFs for lower costs and new ways to solve portfolio challenges.
 
As more investors become familiar with ETFs, investors are finding new ways to access markets, trade exposures, and build more efficient portfolios with ETFs.
 
“People have evolved from ‘what are ETFs?’ to ‘how do I use them to meet my investment goals?’ That’s a tremendous shift from a few years ago and a reflection of greater awareness, and the innovative ETFs coming to market,” says Small. “Today, iShares is able to index exposures with greater quality and precision that we could only dream of just a decade ago.”
 
Costs remain a top consideration for investors, and that’s driving more ETFs to the core of portfolios. Other prominent uses include diversification, and international and sector exposures.
 
ETF investors are also thinking long term. One third of investors plan to increase their use of ETFs for long-term investing, with the average holding period up to nearly six years, from five last year. Only 5 per cent of investors use ETFs for less than a year.
 
The “active versus passive” debate is still a hot topic for investors, but they don’t see ETFs as either-or propositions. The majority (65 per cent) see a mix of ETFs and mutual funds as the best approach to building a portfolio. Just 10 per cent believe there is no need to hold mutual funds if you have ETFs, while a quarter are comfortable with just mutual funds.
 
Interestingly, while more investors would prefer to beat the market than simply track it (35 per cent to 26 per cent, respectively), they acknowledge that choosing winners is hard and only 1 in 4 think they can successfully select active managers who can outperform the market.
 
“The whole active-passive argument is outmoded,” says Small. “Today, investors have ETFs and mutual funds, and they can both be used together. There are many ETFs that replicate strategies used by active managers, and many active managers that hug the index. More to the point, every decision is active, whether it’s where and when to invest, which vehicle to use or how much you’re willing to pay for the goal you’re seeking. There is no such thing as a passive portfolio.”
 
Even as more people become familiar with ETFs, there remain gaps in knowledge about the full breadth of applications. For example, while half of investors use individual stocks to generate income, only a third use ETFs for this purpose. As a result, stock-pickers may be unintentionally concentrating risk in their portfolios – if a company cuts its dividend, for example or its stock price drops – compared to a more diversified dividend-paying ETF. Silvers are the standouts, not surprisingly: nearly two-thirds say they use ETFs to generate income.
 
Many investors are similarly under-utilising ETFs to provide many of the same benefits as mutual funds, such as reducing overall risk (49 per cent use mutual funds vs. 35 per cent for ETFs) and improving performance (42 per cent use mutual funds vs 33 per cent for ETFs). Just 23 per cent of investors recognise ETFs’ inherent tax efficiency, one-third that ETFs can be used for bond investing, and four in 10 that most ETFs track indexes.
 
These gaps are opportunities for investors to get informed and broaden the investment toolkit.
 
“Even with the explosive growth of ETFs in the US and around the world, they are still a relatively small part of the investable universe,” says Small. “We believe this is just the beginning, as more people seek efficient, low-cost ways to build out their core portfolios, diversify internationally, target niche markets and put their hard-earned cash to work.”

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