Only one in five (22 per cent) retail investors in the UK currently invest in exchange-traded funds (ETFs) or ETPs, according to a survey of 1,000 UK retail investors commissioned by WisdomTree, the ETF and ETP sponsor.
The firm writes that European ETP assets under management swelled to USD1.6 trillion in 2021, with many investors preferring the low-cost and transparent nature of the wrapper. This trend has yet to catch on amongst UK retail investors. Interestingly, 47 per cent invest in single stocks and shares, which are often higher risk than investment funds. Additionally, 33 per cent invest in open-ended funds, while 32 per cent allocate to investment trusts.
Education is cited as the main barrier to investing in ETFs/ETPs as, of those who do not invest in them, 34 per cent said it was due to not understanding them. In total, 19 per cent of respondents indicated they have never heard of ETFs/ETPs. As a result, 35 per cent of UK retail investors said they would be interested in receiving ETF/ETP education from their investment platform and online broker.
Investment research and educational content are held in high esteem by UK retail investors. Over three quarters (77 per cent) would consider signing up to a new investment platform or online broker if it offered a wider range of research and educational material. The survey found that 36 per cent of UK retail investors get their investment research and information from their investment platform or broker, 35 per cent from a financial adviser and 33 per cent from financial news sites. This hunger for knowledge comes as almost half of the survey respondents (48 per cent) say that a global recession and inflation (40 per cent) are the biggest risks to their investments this year.
Adria Beso, Head of Platforms Distribution, Sales, Europe, WisdomTree says: “Despite the large growth in demand for ETFs and ETPs by professional investors, uptake has been slower in the retail market, and particularly in the UK when compared with other European countries like Germany. Confidence in knowing how and why to invest in ETFs and ETPs is low, leading to a lack of investment despite the fact they are easily traded, offer diversification and more transparency, and are low cost, all of which are important in the current economic backdrop.”
ETFs/ETPs are growing in popularity despite the relatively low investment amongst retail investors in the UK. Younger investors are driving the growth as 36 per cent of 18–34-year-olds invest in them compared to just 5 per cent of those over the age of 55. Those who use ETFs/ETPs tend to invest a weighty proportion of their capital in them, on average 36 per cent, and 23 per cent of respondents hold over half of their investments in them.
Of the 18–34-year-olds who invest, 54 per cent do so because they are easy to understand, suggesting that investing in ETFs/ETPs will grow once there is wider awareness and education in the UK market. Investment platforms and online brokers have an opportunity to facilitate the expected demand for ETPs/ETFs, as nearly four in ten (37 per cent) investors expect to increase the number of ETFs in their portfolios this year, rising to 55 per cent of 18–34-year-olds.
This young group is driving further change in the investment industry by demanding more access and a wider offering from their investment platforms, with half of young people surveyed using more than one investment platform or online broker, compared to just 24 per cent of over 55s. Nine out of ten (90 per cent) 18–34-year-olds are also likely to consider adding a new investment platform or online broker if it offers a wider choice of products, compared to 86 per cent of those aged 35-54 and 64 per cent of those over the age of 55.
On top of offering investment research and education, costs and fees are the most important factor when choosing an investment platform or broker, with 94 per cent of UK respondents deeming costs important. 88 per cent of those aged 18-34 say the availability of a mobile app is important, which compares to 77 per cent of those aged 35-54 and just 32 per cent of those aged over 55 – demonstrating the shift in how people access and manage their capital.
Those over 55 are less likely to choose based on a brand’s popularity, with just 59 per cent saying this is important, compared to 89 per cent of those under 35. Similarly, nine out of ten young people say that recommendations from family and friends are important when choosing a platform compared to 75 per cent of those aged 35-54 and just 49 per cent of those over 55. The ability to transfer investments to other providers, a financial incentive, educational content, and low or zero trading fees are also paramount for young people.
Beso says: “Education of different investment types is crucial to ensure retail investors are making the most of their savings and investments, while positioning themselves appropriately in different economic conditions. The survey found that investors are most worried about a global recession, inflation and market corrections when thinking about their investments, so investment research and education are fundamental to help navigate risks and to help investors stay on track with their financial planning.”
Alexis Marinof, Head of Europe, WisdomTree says: “Professional investors have been enjoying the benefits of ETPs for some time, as they offer cost-efficient, liquid, transparent, diverse and easily tradable investments, but now these need to be made more readily available for retail investors. Our survey found that over a fifth of retail investors don’t think their platform or online broker offers ETFs/ETPs. It is clear that with more information and education, DIY investors are more likely to diversify their portfolios, better positioning themselves for long term growth.”