Exchage-traded funds (ETFs) currently face a barrier to the retail investing market, a survey has found, as around two-thirds of individual investors that haven’t purchased one already don’t know what they are or how they work.
Encouragingly, for HANetf, which commissioned the suvery, most of these investors say they would be interested in learning about them.
Close to a quarter of retail investors surveyed claim to have never heard of the acronym before.
What is an ETF?
An ETF works in a similar way to other investment vehicles like funds or trusts but differs in one significant way.
These funds are essentially track the prices of securities such as stocks, commodities or indexes.
Some of the most popular ETFs are those tracking indexes such as the FTSE 100 or the S&P 500.
Some benefits of these funds are that because they are 'passive', they require cheaper administration fees than compared to institutional funds and can be traded like shares on most platforms, from large investment supermarkets like AJ Bell and Interactive Investor to newer apps like Robinhood and Trading 212.
ETFs also provide a chance for people to invest in specific themes or sectors without having to research and purchase shares in individual companies - known as thematic investing - which can offer a low-cost means of portfolio diversification.
ETF knowledge
More than half of retail investors that don’t use ETFs said they would be interested in learning about them, the survey found, while one out of ten say they will consider investing in the vehicle in 2023.
Tom Bailey at HANetf said: “ETFs have seen an amazing adoption rate since their invention around 30 years ago. However, there is still a long way to go in terms of not just increasing adoption but improving knowledge.”