For all the attention ETFs get, you might be surprised to know that just 31 per cent of Canadian investors hold them in their portfolios.
That's one of the findings of a new survey by of exchange-traded fund usage by BlackRock Canada, a big player in the ETF sector. Apparently, a lot of people are unfamiliar with ETFs and the way they're used. To remedy that, let's look at five things the BlackRock survey tells us about ETFs and their role in the investing universe:
1. ETFs play well with other investment products: BlackRock found that ETFs are typically used as part of a portfolio that contains other securities. ETFs can certainly be used to build entire portfolios – that's what almost all robo-advisers are doing. But the survey shows that ETF users allocate 20 per cent of their portfolios to ETFs. A 24-per-cent share goes to stocks, 22 per cent to mutual funds, 19 per cent to cash, 7 per cent to bonds (ETFs can provide bond exposure) and 6 per cent to alternatives. (Percentage figures don't add up to 100 due to rounding.)
2. ETFs don't promote irresponsible trading: One of the knocks on ETFs is that their liquidity can encourage investors to trade them actively. Active trading can definitely be a wealth destroyer, but this appears not to be an issue with ETFs. BlackRock found that 39 per cent of investors plan to hold ETFs for six years or longer, and another 28 per cent have a time horizon of three to six years.
3. ETF investors don't hoard as much cash: ETF users in the survey had a cash weighting of 19 per cent, which is quite high at a time when interest rates are as low as they. But non-ETF owners reported cash holdings of 35 per cent. An explanation might be that the diversification of ETFs gives investors the confidence to put their money to work.
4. ETF growth isn't coming at the expense of other investments: Asked where they would get the money for ETF investments in the next year, 48 per cent of total survey participants said cash savings. Just over 20 per cent said selling individual stocks and 14 per cent said selling mutual funds.
5. Mutual funds are still way more popular: Seventy-six per cent of survey participants said they owned mutual funds, compared to 31 per cent for ETFs.
The BlackRock ETF Pulse survey took place in September and involved 402 Canadian investors.