What are some of the factors driving ETFs’ growth? And how prevalent are mutual funds among investors?

There’s no doubt that ETFs have grown enormously in popularity. Almost daily comes word that another major investment firm is establishing a new ETF covering an investment area or strategy. Most recently a study by Cogent Research revealed that nearly two-thirds of affluent investors who own ETFs say they purchased these products with no help from an advisor.

In addition, investors who have advisors also believe they can purchase these products without the assistance of their advisor. In fact, nearly one in four “advised” investors that currently own ETFs say they bought these products on their own.

“Given the high engagement level of self-directed investors with ETFs, it’s no wonder that providers are now focused on addressing the needs of this important audience,” says Christy White, Cogent Research Co-Founder and Principal. White points out that one compelling reason for rethinking traditional distribution models is the fact that 40% of current self-directed ETF owners say they plan to increase their use of these products, compared to just 26% of advised ETF owners who expect to do the same.

While ETFs are definitely in the high growth mode, mutual funds still are most prevalent among the general investment population. More than 50 million U.S. households owned mutual funds in 2009, according to an ICI annual survey of U.S. households. While mutual funds are the most commonly held type of fund, 3.0 million households reported owning ETFs and 1.8 million households reported owning closed-end funds.

“Mutual funds continue to be a key investment vehicle for millions of Americans who are saving for retirement or education costs, or building personal savings for emergency reserves,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research.

• Baby Boomers are the largest mutual fund–owning generation. In 2009, 46 percent of mutual fund–owning households were headed by Baby Boomers, and they held 59 percent of households’ mutual fund assets.
• Fund performance continues to have the most influence over investors’ opinions of the fund industry overall—with two-thirds of owners familiar with mutual fund companies indicating that fund performance was a “very” important factor. Other important factors that influenced shareholder views included the opinion of professional financial advisers, personal experience with a mutual fund company, and current financial events.
• Younger mutual fund investors had a more favorable view of mutual funds than older investors. For example, in 2009, 72 percent of fund owners younger than 35 who were familiar with mutual fund companies had “very” or “somewhat” favorable impressions of mutual fund companies, compared with 61 percent of fund owners 65 or older.

Although shareholder confidence was shaken somewhat in 2009, the majority of mutual fund investors were still confident in mutual funds’ ability to help them achieve their financial goals.