Owners of exchange-traded funds (ETFs) tend to have higher levels of financial knowledge than do investors who do not own ETFs. ETF holders also tend to be younger in age. Notably, a focus on expense ratios does not play a significant role in defining who owns ETFs.

The findings are based on two surveys from the National Financial Capability Study (NFCS). The first survey, which was given to more than 27,000 adults, measured perceptions, attitudes, experiences and behaviors on a wide variety of financial topics. The second survey was sent as a follow-up questionnaire to 2,000 respondents of the first survey who had investments outside of retirement accounts. About 22% of respondents to this survey held ETFs in taxable accounts.

Those who owned ETFs exhibited high levels of subjective and objective investor knowledge. Subjective knowledge is how much a person believes they know about a subject. In the surveys sent, respondents were asked to rate their overall knowledge of investing. Objective knowledge is measured by how many questions about a subject a person correctly answers. The study’s authors found that a point increase in either objective or subjective knowledge (based on a scale of one to seven) led to a respective 4% and 1% greater likelihood of a person owning an ETF in a nonretirement account.

Age also played a big role. Respondents in the 25 to 34 age group were 11% more likely to hold ETFs in a nonretirement account than those who were older than age 65. The study’s authors suggested that a breakpoint age of 44 exists among those who do and don’t own an ETF. The authors further attributed the age difference to many older investors being “likely uninformed” about ETFs.

Though there was a slightly higher level of fee aversion found among ETF owners, the difference was not large enough to make it a significant factor in characterizing ownership levels. The study’s authors were surprised by the rejection of their hypothesis that an aversion to fees would be associated with ETF ownership. They suggested it may be attributable to the availability of low-cost mutual funds.

Source: “Characteristics of ETF Owners: Exploring the Role of Investor Knowledge, Fee Aversion, and Financial Advice Seeking,” by Shane Enete, Miranda Reiter, Wendy Usrey, Andrew Scott and Martin Seay; SSRN, September 30, 2018.