Education is the biggest barrier to entry among UK retail investors with more than a third (34%) stating they do not understand the product, according to research commissioned by WisdomTree.
In a survey of 1,000 investors with a minimum of £5,000 invested, conducted by market research firm Opinium, only one in five (22%) of retail investors in the UK said they invested in ETFs, with 19% indicating they have never heard of them.
Retail uptake of ETFs in the UK has lagged other countries across Europe, particularly Germany, where retail investors are encouraged to use low-cost and flexible ETF saving plans.
According to recent figures from BlackRock, the number of people making monthly contributions to ETF saving plans in Germany is projected to hit 20 million by 2026
The European exchange-traded product (ETP) assets under management hit $1.6trn in 2021, and while the UK has the second-largest investor base in Europe (25%), according to Blackwater Search & Advisory, this has been driven by institutional clients.
Adria Beso, head of platforms distribution sales for Europe at WisdomTree, said: “Despite the large growth in demand for ETFs and ETPs by professional investors, uptake has been slower in the retail market, and particularly in the UK when compared with other European countries like Germany.
“Confidence in knowing how and why to invest in ETFs and ETPs is low, leading to a lack of investment despite the fact they are easily traded, offer diversification and more transparency, and are low cost, all of which are important in the current economic backdrop.”
Despite the lack of uptake, demand for learning about the products appears to be strong.
Of those surveyed, 35% said they would be interested in receiving ETF education from their investment platform or online broker.
Furthermore, 77% would consider signing up to a new platform if it offered a wide range of educational material. The research found that 36% currently get their financial education from their investment platform, 35% from a financial adviser and 33% from financial news sites.
Wider usage of ETFs within the UK retail space is likely to come from younger investors, with 36% of 18-34-year-olds investing in ETFs compared to 5% of those aged over 55, because they are easier to understand.
Almost half (40%) said they would be looking to increase the number of ETFs in their portfolio this year.
The younger cohort is also driving demand for a wider offering of investment platforms, with half of 18-34-year-olds saying they use more than one investment platform, while 90% said they would consider adding a platform if it offers a wider choice of products.
Alexis Marinof, head of Europe at WisdomTree added: “Our survey found that over a fifth of retail investors do not think their platform or online broker offers ETFs/ETPs.
“With more information and education, DIY investors are more likely to diversify their portfolios, better positioning themselves for long term growth.”