|Cost Is What Really Matters, Morningstar Survey Shows|
|May 08, 2012 11:26 (CET)|
The ability to trade intraday is one of the oft-cited advantages exchange-traded funds have over mutual funds, but it may not actually be very important to investors, the results of a recent Morningstar survey show.
The data provider’s fourth ETF Centre survey revealed that the majority of investors were taking a buy-and-hold strategy when it came to ETFs, with 74 percent stating that they planned to trade their holdings only occasionally.
Of the survey’s respondents—85 percent of which were private investors—54 percent said they only intended to trade their ETF portfolio once every few months to a year, while 20 percent said they would retain theirs for years. Just 11 percent planned to trade once a month, and only 3 percent said they would trade intraday.
A relatively small 28 percent of respondents said that intraday liquidity was a very important attribute in their decision-making process when it came to ETFs. In contrast, 70 percent said low cost was very important.
This finding ties in with a recent report by Moody’s, which predicted the low cost of ETFs was one of the major factors that would underpin continued growth in the industry.
The Morningstar survey also found that investors’ wariness of synthetic products continued despite the recent shift in focus to the risks involved in securities lending within physically-replicated funds, and that investors expected a trade-off in return for accepting counterparty risks. A total of 65 percent of those answering the survey said they would expect funds with higher counterparty risks to come with lower total expense ratios.
The research also revealed that ETFs have some way to go before becoming a major part of investors’ portfolios—the majority of those currently investing in ETFs had allocated less than 20 percent of their portfolio to the vehicles.
Ben Johnson, Morningstar’s director of European ETF research, said: “Despite the many benefits around low cost and ease of tradeability, there is still some way to go in providing investors will all the information and transparency they need to feel comfortable with ETFs as a larger component in their portfolio.”