Industry Updates

Investors to seek safety in ETFs as volatility looms

George Geddes

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A large volume of capital is expected to flow in to ETFs in the next six months as analysts forecast increased market volatility, according to Charles Scwab’s latest forecasting report.

A recent survey carried out by Charles Schwab questioned 1,500 investors who have bought or sold ETFs in the last two years and found 61% of ETF buyers expect an increase in volatility throughout the next two-quarters. In reaction to the potential volatility, nearly half (44%) say they will allocate more capital in to ETFs as a result.

Looking at which asset classes investors will be gaining exposure to; domestic equity ETFs was the top pick with 63%. However, when filtered between generations, more Millennials said they would choose fixed income ETFs with 72%, higher than equity with 62%. More Generation X and Baby Boomers said they would pick domestic equity than fixed income.

Unanimously, all generations agreed that the technology was the most likely sector they would invest in over the next year as 69% ETF buyers selected this option.

Following the increased market volatility in Q4 2018, over half of those surveyed said they have increased their ETF allocation. For those investors expecting volatility to return, nearly three-quarters (73%) expect to increase their investments in ETFs with 37% saying they are considering placing their entire portfolios (excluding cash) into ETFs over the next 12 months.

The Chicago Board Options Exchange Volatility Index (VIX), an indicator of the S&P 500’s volatility, has been on an upward trend over the last week. In tandem, investors have been panic selling causing the S&P 500 to fall 2.1% since Monday.

Removing the factor of market volatility, investors mentality towards ETF adoption has improved over the last year. 79% of investors now see ETFs as their investment vehicle of choice, up 7% from the previous year. Similarly, 68% expect to increase ETF investments in the next year, up from 54% in 2018.

Millennials are more favourable to ETFs with 90% saying it is the investment vehicle of choice. A recent insight found platforms are making it more accessible for Millennials to start investing. Vanguard also carried out a study which found Millennials are the most enthusiastic about investing with ETFs.

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