Online broker E*Trade has published a study showing how exchange-traded fund (ETF) preferences vary by age.
A study from online broker E*Trade reveals the varying ETF preferences of Millenials, Gen X vs Baby Boomers.
Based on a survey of 946 self-directed active investors with at least $10,000 in an online account, it found that Millennials are more likely than Baby Boomers to show interest in a range of less mainstream ETFs, including commodity and foreign currency ETFs.
Boomers, meanwhile, prefer dividend ETFs over any other type.
Similarly, Millennials are interested in style ETFs, such as growth or value, and those focused on different market-cap brackets, such as mid- or small-cap, while Boomers are distinctly less keen.
Derivative ETFs are pretty much of zero interest to Boomers, but garner progressively more interest as the investor group gets younger. This perhaps reflects older people’s aversion to unnecessary complications or risk.
Interestingly, bond ETFs are of most interest to the youngest grouping, the Millennials, and are of less interest to the older Boomers generation. This appears to conflict with traditional asset allocation approaches where portfolios are reoriented towards fixed income assets as the investment horizon shortens – though this has likely been distorted by the current low-yields offered by bonds.
The top three ETFs for the total surveyed investor population are US market index ETFs, dividend ETFs, and sector- and industry-specific ETFs.
Rich Messina, SVP of Investment Product Management at E*Trade, said: “The strong interest in US market index ETFs suggests investors have faith in the domestic markets post-Brexit. While US market index ETFs are by far the most popular choice, investors are exploring additional asset classes in search of yield, downside protection, and income-generating positions.”
Messina offered the following observations on what is driving investors towards certain ETF types:
“Dividend ETFs are popular for income: In a market characterized by uncertainty, geopolitical headwinds, and low fixed income yields, investors of all ages are turning to dividend ETFs as a possible source of income streams.
“Non-traditional ETFs gain traction as investors search for yield: In today’s unprecedented low interest rate environment, investors hunting for yield are stalking an increasingly elusive prey, as traditional fixed income yields continue to be under pressure. Investors with larger risk appetites, like some Millennials, are looking to take advantage of lower prices in places like commodity and bond ETFs.
“ETFs focused on non-cyclical sectors can be used to mitigate risk: Sector-specific ETFs such as utilities, consumer staples, and REITs are seen as non-cyclical sectors that can help protect against market volatility, which can be particularly attractive to older investors nearing retirement.”
The survey defined Millennials as those aged 25 – 34, Gen X as those aged 35 – 54 and Baby Boomers as those aged 55+. Of the respondents, 65 percent were male and 35 percent were female, with an even distribution across online brokerages, geographic regions and age bands.
While the survey was based on E*Trade’s US brokerage clients, the findings are likely to be mirrored in other countries, the only major difference being investors’ home market bias, with respondents likely to prefer their home country equivalent over a US market index ETF.
