State Street Global Advisors’ 2024 ETF Impact Survey, released Monday, highlights potential growth areas in the ETF market as the industry approaches $11 trillion in global assets.
The survey, which polled individual investors, financial advisors and institutional investors, revealed a disparity in ETF adoption between professional investors and individuals.
While 70% of financial advisors “always” or “often” recommend ETFs to clients and 67% of institutional investors use ETFs extensively or frequently in investment strategies, only 45% of individual investors currently have ETFs in their portfolios, according to the survey findings.
“To me, this is a positive, because it means the market is evolving,” said Anna Paglia, chief business officer at State Street Global Advisors, during a recent conference. Paglia is also a member of the eft.com editorial advisory board.
The survey found that 65% of investors reported ETFs have positively impacted their portfolio performance, an increase from 59% in the previous year.
A generational divide in ETF adoption among individual investors was observed, the survey found. Fifty-eight percent of Millennials reported ETF holdings, compared to 47% for Gen X and 37% for Baby Boomers.
“When we look at the demographic trend… the Baby Boomer generation kind of grew up in the mutual fund world,” said Scott Chronert, head of U.S. equity strategy at Citi. He suggested that as wealth transfers to younger generations more familiar with ETFs, adoption rates could increase.
Knowledge Gap on ETF Tax Efficiency
The survey revealed a knowledge gap among non-ETF investors. Seventy-one percent of investors who don’t own ETFs find their tax efficiency difficult to understand, compared to 48% of ETF investors.
“Despite their popularity, significant investor education still needs to be done to close the knowledge gap about ETFs,” Paglia said in a press release accompanying the report. “We know many investors are initially drawn to ETFs for their low-cost, but more work needs to be done to raise awareness of all the financial advantages ETFs offer investors, beyond cost.”
The survey found that 80% of institutional investors who use ETFs are likely to consider actively managed ETFs, indicating a growing interest in this segment of the market.
“I think we’re entering a new decade where I think it’s going to be a fresh opportunity for active management to begin to come to the fore in what we’re going to see in the ETF wrapper, ” Chronert said, emphasizing the potential for active management in this evolving ETF landscape.
Fixed Income and Global Opportunities
Fixed income emerged as an area for potential ETF growth, the survey indicated.
“We think the fixed income evolution is a little bit different than what’s happening in equities,” Chronert said. “But it all kind of comes down to this construct of choice, which is the opportunity to use ETFs as building blocks in portfolio construction.”
The survey also gauged investor sentiment on market outlook. A majority of institutional investors (57%) and financial advisors (55%) expect the S&P 500 to post gains in 2024, the report noted. Individual investors were less certain, with 44% predicting gains, 31% expecting flat returns and 45% anticipating losses.
When choosing between ETFs with similar exposures, institutional investors prioritize liquidity (66%), track record/performance (62%) and total cost (53%), the survey found.
According to the survey, inflation (73%), fluctuations in interest rates (66%) and geopolitical instability (65%) are among the top three concerns for institutional investors.
Looking beyond the U.S., the survey suggests growth potential in international markets. Institutional investors outside the U.S. showed varying levels of optimism about their own country’s economic outlook, with those in the Netherlands, Singapore and Switzerland expressing the most positive sentiment.
State Street Global Advisors manages 138 ETFs with assets totaling $1.4 trillion. The firm’s largest ETF, SPDR S&P 500 ETF Trust (SPY), currently manages $565.3 billion in assets.
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