David Botset of Schwab Asset Management discusses highlights from a new study “ETFs and Beyond” on ETF TV

Presented by Syntax Advisors.

Margareta Hricova Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I’m Margareta Hricova and joining me today is David Botset, Head of Equity Product Management and Innovation at Schwab Asset Management and Deborah Fuhr. Welcome, David and Debbie.

David Botset Thank you.

Deborah Fuhr Thank you. So David Schwab Asset Management just published the 11th study of ETF Investors. What was the profile of the people that you included in the survey?

David Botset We interviewed both ETF investors and non ETF investors. In this case, we did a thousand of each. We also over sample Generation I which of those investors that are newer to investing over the past three years. Within that profile, we’re looking for individuals between the ages of 25 and 75 with minimum investable assets of 25,000. And those individuals that are classified as ETF investors are those that have invested in ETFs within the past two years.

Deborah Fuhr When you look at ETF investors on average, how much of their portfolio is invested in ETFs?

David Botset For those ETF investors, they currently say 33% of their portfolios are in ETFs.

Deborah Fuhr And have you seen that change over the past five years?

David Botset Yeah. When we look back at the survey from 2017, they indicated that at that point, 27% of their portfolios were in ETFs.

Deborah Fuhr And you’ve asked them to predict what it might be five years from now. What are they saying?

David Botset Right now, they estimate that it’s going to continue to increase and they’re estimating it may reach 40% of their portfolios in five years.

Deborah Fuhr Have they been good at estimations?

David Botset You know, I think they really have been. We wondered that ourselves. We look back at the 2017 survey. In 2017 when we asked them what they thought their investments would be and ETFs, they estimated at 33%, which is where they find themselves today.

Margareta Hricova And what are the top reasons investors do not use ETFs?

David Botset You know, when we look at those non ETF investors, what they say is a lack of understanding or knowledge about ETFs. I’ve been in the ETF industry for a long time and we’ve always promoted the necessity for education and I think we continue to see that from non ETF investors.

Deborah Fuhr When you think about investors that are using ETFs, what do they say is the reason they’re likely to use them again?

David Botset What we actually see is similar results for both ETF investors and non ETF investors, but in slightly different order. For ETF investors, the top reason is it’s easy to buy and sell them. And number two is to diversify their portfolios. Looking at non ETF investors, it’s the same too but in a different order. Number one is to diversify. The second is the ease of buying and selling.

Margareta Hricova And what type of ETFs do investors say they plan to invest in?

David Botset I think what we’ve seen in this year’s survey and past years, is that U.S. equities tend to be the number one category. But if we look beyond the standard ETF structures, income and dividend ETFs rank very high, as do increasingly actively managed ETFs.

Deborah Fuhr People are saying they have an interest in cryptocurrencies. Does that surprise you?

David Botset I don’t think it does. Based upon the profile that we’ve seen from investors, they tend to look for ways to customize or personalize their portfolios and increasingly are looking for those type of thematic players that they can allocate their assets to.

Deborah Fuhr And when investors are selecting ETF, which factors are most important?

David Botset The number one factor for many years has been cost, and I think that’s one of the reasons that so many assets are moving towards ETFs. But what’s interesting is that factors number two through five are much closer to the cost factor than they have been historically. So increasingly, investors are looking at tracking air, the brand of the sponsor, bid ask spreads and other factors like that to inform the decisions about which ETFs are going to purchase.

Deborah Fuhr That’s great. And are there any other findings worth mentioning?

David Botset I think two things. One is increasingly, investors are looking at it as ways to personalize their portfolios, whether that be through things like thematic allocations or ESG strategies. And number two, that investors that use ETFs are more interested in areas like direct indexing. We think largely because of their familiarity with indexing generally.

Deborah Fuhr Thank you for joining us.

David Botset Thank you.

Margareta Hricova Debbie, can you share with us some of the other news from the ETF industry?

Deborah Fuhr During September, 143 new listings have come to market, which year to date takes it to 1109. If we look at last year, there were slightly more new listings. It was 1288. But we actually are significantly above the four prior years where the numbers range from 637 to 788. So less than last year, but more than the prior four years. And if we look at closures, there were 52 in September and year to date, 224. All of the past five years had more closures than we’ve seen this year. So we have seen a significant than set of new launches, fewer closures, and therefore the ETF industry is continuing to grow in terms of products that are out there in the market. A lot of the launches have been in Asia Pacific, followed by the US and then Europe. The majority have been equity focused. Active has also been very important as we’ve talked about. And then we’ve seen fixed income and currency. On October 12th and 13th, we’ll be doing our Asia Pacific event. I would encourage you, if you’re interested in understanding and learning about what’s happening in Australia, India, Vietnam, Hong Kong, China, Singapore, please do join us. We even have the regulator speaking from the SSC and then November 15th will be in-person in New York City, followed by a virtual day on the 16th and November 30th, we will be in Toronto at BLGs office and December 1st will be virtual. So looking forward to seeing people in person again and talking about what’s happening in a lot of parts of the world in terms of ETFs.

Margareta Hricova Thanks so much, Debbie. And thanks again to David for joining us today and to our sponsors, Syntax Advisors and of course, to all of you for watching. To watch prior episodes and to see news from the ETF industry visit us at ETFtv.net. Thank you.

ETF TV news does not provide investment advice nor recommend products.

Published on October 5, 2022