It's no secret that the exchange-traded fund (ETF) has become an uber-popular investment vehicle on the ASX over the past decade or so. ETFs started simple, with funds mostly tracking indexes like the broad-based S&P/ASX 200 Index (ASX: XJO).
But today, there seems to be an ETF for every flavour you can think of. Oil? There's the BetaShares Crude Oil Index ETF (ASX: OOO). Do you find particular interest in the share market of South Korea? Then the iShares MSCI South Korea ETF (ASX: IKO) could pique your eye. Food loving investors might find interest in the BetaShares Global Agriculture ETF (ASX: FOOD). Robotics? Try the ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO). You get the idea.
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The youngins love it
But new research from ETF provider BetaShares shows just how much of this interest comes from younger investors. 2020 was a great year for the ETF structure, despite the disruption of the global market crash in March.
According to the research, the number of ASX investors using ETFs climbed 58% in 2020, from 455,000 to 720,000. That was reportedly the largest annual increase ever recorded.
What's more, nearly two–thirds (65%) of these new ETF investors entering the market between March and August 2020 were under the age of 40. That is, millennials and 'Gen Zers'.
Alex Vynokur, CEO of BetaShares, said this of what he sees:
The average age of the ETF investor continues to fall, as first–time investors increasingly are made up of those under the age of 40. This continues a long–term trend and demonstrates that the wealthier early SMSF adopters of ETFs are now joined by younger Australians, who are also turning to ETFs to help them achieve their financial goals...
Investing can be daunting, particularly in times of volatility, such as during the pandemic–related market turmoil or more recently, during the GameStop controversy.
The fact that investors, particularly younger investors, continued to invest in ETFs throughout 2020 suggests that not only are investors attracted to the liquidity ETFs offer in volatile markets, they also appreciate simple, cost–effective way to diversify portfolios and minimise single stock risks…. We are preparing for another strong year of growth
Why are ETFs so hot right now?
So why are investors, especially millennials and Gen-Zers, choosing to invest in ETFs rather than individual ASX or international shares? Well, 63% of the investors BetaShares surveyed stated that diversification was the most important factor at play for choosing ETFs.
This makes sense. It is far easier to achieve diversification through a single share of an ETF than through direct share investing. That's because a single ETF can hold thousands of individual holdings with it. Other reasons why investors chose an ETF (or two) for their portfolios include access to specific overseas markets (24%), avoiding risk to individual stock exposure (42%), and efficiency (39%).
These numbers look set to grow even higher over the next 12 months. BetaShares is expecting another 190,000 investors to buy their first ETF in the next year. And if last year's statistics hold, this will include 120,000 millennials and Gen-Zers. ETFs are the new black right now, that's for sure.
