ETF Popularity Outpaces Investor Confidence

ETF interest is growing among Australian investors, but a lack of understanding continues to prevent many from entering the market, according to iShares research.

The firm’s inaugural ETF Insights report found only 16 per cent of Australians are currently investing in ETFs, despite 32 per cent saying they are likely to do so over the next 12 months.

More than half of respondents (55 per cent) reported having little or no understanding of ETFs, including 26 per cent who had never heard of them and 29 per cent who said they had heard of ETFs but did not understand them.

Investor confidence also emerged as a key obstacle to broader adoption as concerns about market losses were cited by 39 per cent of respondents as the biggest barrier to investing in ETFs, while 36 per cent said choosing between products was too difficult.

Hidden fees and a lack of understanding were also commonly identified barriers, at 31 per cent and 30 per cent respectively.

iShares ETF specialist Tamara Haban-Beer Stats said the findings point to a disconnect between investor interest and confidence.

“An encouraging finding from this research is that interest in ETFs is growing, but there’s still a significant gap between awareness and action,” Haban-Beer said.

“While only 16 per cent of Australians currently invest in ETFs, twice as many say they’re considering doing so in the next 12 months. That tells us the appetite is there, but many people still need greater confidence before taking the next step,” Haban-Beer added.

The report also highlighted the challenge investors face handling an expanding ETF market. More than half of Australians say they have little or no understanding of ETFs, while over a third find it difficult to choose between products.

“Interestingly, more than 40 per cent of those who already invest in ETFs still find the choice of products confusing – suggesting that with over 450 ETFs now listed in Australia, the industry needs to do more to help investors handle their options and choose the right strategy for them,” Haban-Beer said.

Women were found to have lower levels of ETF knowledge and participation than men, with 64 per cent reporting low or no understanding of ETFs compared with 46 per cent of men. The research also found 40 per cent of women do not invest at all, compared with 24 per cent of men.

Investment intentions also differed between genders as almost half of men (49 per cent) said they were fairly or very likely to invest in shares over the next year, compared with 30 per cent of women. Likewise, 34 per cent of men said they were likely to invest in managed funds, compared with 23 per cent of women.

Haban-Beer Stats said the findings highlighted an opportunity to improve financial participation through education.

“The findings also highlight an important opportunity to support women on their investing journey. Women report lower levels of ETF knowledge and are significantly less likely to invest than men, suggesting education and access to information can play an important role in helping more Australians participate in long-term wealth creation.”

“Female investors also tend to be more likely to choose an ETF based on personal recommendation, such as from a broker or online community forum, suggesting one-to-one engagement is a powerful tool to be harnessed when it comes to recruiting more women into investing.”

She added that improving investors’ understanding of ETFs would be essential as interest in the investment vehicle continued to grow.

“ETFs were originally designed to simplify investing by providing diversified market exposure in a single trade. Ensuring investors understand how these tools can fit into their portfolios will be key to helping more Australians turn interest into action.”