Nearly 20 years after they were first introduced, exchange-traded funds remain unfamiliar territory for many investors.
According to a survey released Monday by TD Ameritrade Holding Corp., 34% of investors surveyed have heard of ETFs, 25% have a basic understanding of the product, and only 15% of investors have these products in their portfolios.
But despite the lack of awareness, some ETFs may fit what these investors are looking for, according to the study.
When asked about their most important requirements when choosing an investment product, the ability to reduce risk through diversification was ranked the number one feature among the nearly 40% of investors who said they are undecided about investing in ETFs.
The investors also included lower expenses and fees and ability to trade commission-free in their top-five requirements.
While most investors remain unclear about ETFs, self-directed investors remain the exception. According to a similar survey among TD Ameritrade clients, 76% have heard of or owned ETFs and 49% have a better understanding of ETFs today compared to a year ago.
The survey also indicated that ETFs are being used more frequently in retirement accounts among TD Ameritrade clients, and usage has increased steadily by nearly 60% since early 2007.
TD Ameritrade has launched an ETF Market Center, which includes a list of over 100 commission-free ETFs from a variety of providers that have been evaluated and selected by independent experts at Morningstar Associates.
"ETFs may fulfill many of the stated needs that investors have told us are important to them," said Mike McGrath, the of director of ETFs at TD Ameritrade.
"It’s a matter of awareness, education and simplifying the selection process. We are committed to helping investors create cost-effective, diversified long-term portfolios, and the more investors know and understand what options are available to them, the more confident they’ll be in their decision-making. ETFs are still a relatively new asset class, and as awareness continues to increase, we believe the popularity of ETFs will increase as well," he explained.
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