Retail investors aged 18-34 are more than twice as likely to invest in ETFs than those aged over 55, according to new research by Invesco. The vast majority (92 per cent) of investors aged 18-34 have an allocation to ETFs in their portfolios, versus less than half (43 per cent) of over-55s.
Further, younger investors have much more significant allocations: 84 per cent of ETF investors aged 18-34 invest more than a quarter of their portfolios in ETFs; however, among ETF investors aged over 55, this figure is just 30 per cent.
There is also a generational divide in the reasons for investing in ETFs. For investors aged over 55, the most popular reason for investing in ETFs is the diversification that they offer, cited by half of respondents (51 per cent). This was much higher than the 18-34 demographic (29 per cent), who ranked diversification third.
Invesco’s findings also reveal a lack of understanding about ETFs, reiterating the need for providers to improve how they communicate about their products to the market. The majority (60 per cent) of private investors cannot accurately identify what “ETF” stands for and 62 per cent cannot accurately define what ETFs do.
Of the private investors that do not invest in ETFs, by far the most common reason (48 per cent) was a lack of knowledge about them. This dwarfed other factors, such as an inherent preference for active management (12 per cent) and a perceived lack of suitable options (5 per cent), illustrating the scale of the opportunity for ETF providers.
Gary Buxton, Head of EMEA ETFs at Invesco, says: “Retail investors are looking for simple, low-cost investment options with the potential for outperformance, but too many are unaware of how ETFs can help meet these objectives.
“While we expect newer investors to need education about the benefits of investing in ETFs, the number of experienced investors that have are not realising these benefits, having never invested in ETFs, is surprising. It is incumbent on us, as ETF providers, to better explain the role our products can play in portfolios.”
Invesco has launched an ETF for investors wanting a simple, low-cost way to gain diversified exposure to global equity markets. The Invesco FTSE All-World UCITS ETF tracks the performance of the FTSE All-World Index, which offers exposure to more than 4,000 large and mid-sized companies across 49 developed and emerging market countries. It has an annual charge of 0.15 per cent, which the firm says makes it the lowest-cost ETF among similar exposures in Europe.
Chris Mellor, Head of EMEA Equity ETF Product Management at Invesco, says: “We believe our new ETF should be suitable for investors wanting a simple, stand-alone global equity product that doesn’t require them to really do anything else after they’ve invested. Alternatively, the ETF could be just as appealing to investors wanting a core base from which they can further diversify their portfolios. They may decide to build on this base over time by adding other ETFs, for example ones investing in bonds or in specific types of companies in which they may be interested.”
