Amid Active/Passive Investing Debate, E*TRADE Study Reveals Investors Still Prefer Stock-Picking Over ETFs
While it would appear ETFs are increasing in popularity, stocks and mutual funds remain the top choice among surveyed investors (Graphic: Business Wire)
- Stocks are the majority of investors’ first choice for their portfolios. Even though stock investing is down 14 percentage points since 2015, it remains more favored than investing with mutual funds and ETFs. This quarter, 58% of surveyed investors said they put their money in individual stocks, as opposed to 49% who said they invest in mutual funds and 37% who invest in ETFs.
- They’re also most likely to recommend stocks to others. More than half (54%) of investors would recommend investing in individual stocks to a friend or family member, followed by equity mutual funds (49%), money market funds (39%), and ETFs (37%).
- Investors prefer stocks as a vehicle for sector exposure. Almost two thirds (65%) of investors said they typically purchase shares of one or a handful of companies to gain exposure to specific sectors rather than buying a sector-specific ETF (18%) or mutual fund (17%). In particular, young investors over-index in stocks, with 80% describing them as their preferred method for sector exposure.
- That said, the preference gap is narrowing. Among surveyed investors, the preference gap between stocks and ETFs has narrowed by 16 percentage points since 2015. Stock preference declined from 72% to 58% over that period, while ETF preference has remained relatively consistent at 37%.
“While ETFs are hugely popular, it’s important to remember that compared with stocks and mutual funds, they are still a new kid on the block and investing habits can be hard to break,” said
Mr. Messina offered additional observations for investors who might be considering active or passive strategies:
- There is no one-size-fits-all solution. Just as investors’ financial goals vary, the way they choose to pursue those goals can and should differ. If one’s goal is to maximize tax efficiency or low expense ratios, certain ETFs may be a sound choice. If one is more comfortable with having professional portfolio managers oversee assets, mutual funds could be a better fit.
- Not all ETFs are the same. Not all ETFs are constructed around market-cap-weighted indexes. In fact, many multi-factor ETFs are quasi-actively managed, which can also mean higher expense ratios and less transparent methodologies.
- You can mix and match. Depending on one’s financial goals, a healthy mix of active and passive strategies can make a lot of sense—particularly for added diversification.
- Style matters. Deciding whether to pursue an active or passive approach can also depend on the style. For example, active managers may gain more of an information advantage in emerging markets or in certain segments of the fixed income market than in large-cap equities, which are more heavily researched and widely traded.
E*TRADE aims to enhance the financial independence of traders and investors through a powerful digital offering and professional guidance. To learn more about E*TRADE’s trading and investing platforms and tools, visit etrade.com.
For useful trading and investing insights from E*TRADE, follow the company on Twitter, @ETRADE.
|Which of the following products and services do you currently hold/own across all of your household investments?||Q3’18
If you could give advice to a friend or family member who is thinking of investing right now, would it be to get into...
|Equity mutual funds||49%|
|Money market funds or other cash-like instruments||39%|
|What is your preferred method for achieving exposure to a specific sector for your portfolio?|
|Buy shares of the best performing company in the sector||21%||29%||17%||19%|
|Buy shares of a handful of different companies in the sector||44%||51%||50%||34%|
|Buy a sector-specific ETF||18%||13%||22%||18%|
|Buy a sector-specific mutual fund||17%||7%||11%||29%|
|Which of the following products and services do you currently hold/own across all of your household investments?|
About the Survey
This wave of the survey was conducted from
The information provided herein is for general informational purposes only and should not be considered investment advice. Past performance does not guarantee future results.
About Research Now