ETFs: Millenials Leading the Way

INDEX PERFORMANCE DATA

TETF INDEX PERFORMANCE Vs. LEADING FINANCIAL INDEXES

IN ETFs WE TRUST

One of the trends supporting the growth of the ETF ecosystem is demographics. Many headlines report Millennials are choosing ETFs as their investment vehicle of choice more than any other generation.

CURRENT ETF ADOPTION RATE  BY GENERATION

Source: BlackRock Data

Most attribute this trend to ETF client alignment growth factors like low costs, transparency and tax efficiency. However, one of the most substantial and overlooked sources is trust.

Millennials have established trust in new ideas and concepts like AirBnB and Uber quicker than other generations because of the low cost, self-service, and promptness. These are very similar to the benefits of ETFs.

To dig deeper into the Uber example, Millennials are beginning to have just as much trust, if not more, in ride-sharing drivers instead of traditional taxis because you can see a driver’s rating.Bad ratings equate distrust, so Uber drivers must uphold a strong user rating. Along the same lines, Millennials have grown up during a time with mistrust in the markets and investment firms.

The more growth the ETF market experiences, the more faith and trust is established to all investors of each generation. Millennials are pioneering how far they can trust technology as the financial sector innovates with new ETFs.

Do Millennials TRUST the Establishment?

“Millennials have grown up in an era where there has been some mistrust in the markets and some big bear markets. Large-cap indexes have been tough to beat over the past eight years so low-cost indexing has been attractive. It certainly has put a real tailwind behind ETFs as an investment option.”
Source: Jason Browne, Chicago Tribune

Another reason young investors are trusting ETFs is that they are getting many of the same benefits as mutual funds except with more flexibility. Additionally, most ETFs avoid promoting misaligned incentives. Active managers make investment decisions to outperform a benchmark; which often effects their compensation and career. Passive indexes simply provide a process to capture an exposure without the incentives to make rash or self-serving decisions.

 

TRUST in Growth

It is important to know where millennials are investing and where they want to invest in the future because they are the future. The chart below illustrates the percent of investors who are over 25 years old and Millennials account for the largest group by an increasing margin every year.

 

% OF INVESTING POPULATION OVER 25

 

EXPECT ETFS TO BE PRIMARY INVESTMENT IN THE FUTURE

Source: Charles Schwab Data

 

In fact, 63% of Millennials believe that ETFs will be their primary investment vehicle in the future.

 

TRUST IN PROCESS: THE QUANTITATIVE APPROACH

TETFindex seeks to monitor and capture this growth of the ETF ecosystem. In order to provide this exposure, we begin with building a universe of ETF companies.

We examine any public company above $200 million in Market Cap that participates in the industry. This includes ETF Issuers, Index and Data companies, Exchanges, Liquidity providers and ETF Service providers.

Once the universe of ETF Ecosystem equities is established, the tier system is utilized to overweight companies with the most exposure to the growth of the ETF industry:

 

TRUST IN PEOPLE: THE QUALITATIVE APPROACH

The TETFindex Committee is helmed by thought leaders dedicated to understanding, researching, and creating products within the ETF space. They provide a qualitative review of the index constituents and help to evaluate the tiers.

 

INDEX COMMITTEE TEAM

In summary, the seeming reasons of ETF popularity among Millennial investors are low cost, diversification, and transparency. However, the underlying reason is trust. The ETF concept and industry is generating more and more trust as growth remains consistent.  We trust TETFindex to monitor and capture this growth.

 

ETF LAUNCHES

  • Hartford Global Impact NextShares – HFGIC
  • JPMorgan Managed Futures Strategy – JPMF
  • ARK Israeli Innovation ETF Hdg – IZRL

ETF LAUNCH OF THE WEEK

ARK comes second to market in the Israeli technology space with a unique approach. ARK Israeli Innovation ETF Hdg has an equally weighted approach to disruptive innovation within genomics, health care, biotechnology, industrials, manufacturing, and the internet of things companies based in Israel

.

UNDERLYING TOP/BOTTOM 10 HOLDINGS PERFORMANCE