In Focus: Megatrends  

Fifth of UK investors never heard of ETFs

Fifth of UK investors never heard of ETFs
One in five UK retail investors currently invest in ETPs (Credit: Luke MacGregor/Bloomberg)

A mere one in five (22 per cent) UK retail investors currently invest in exchange-traded products while a further fifth have never heard of the products, research has found.

A survey from ETF provider WisdomTree found education was the main barrier to investing in ETFs or ETPs as 34 per cent of those who do not invest in them said it was due to not understanding them.

ETPs are an umbrella term for exchange-traded funds (ETFs), exchange-traded commodities (ETCs), and exchange-traded notes (ETNs).

The European ETF market gathered €42.7bn (£35.5bn) of flows in the first quarter of 2022, 25 per cent more than in the previous quarter, according to Morningstar’s Q1 European ETF asset flows update.

Yet in the UK 19 per cent of respondents told WisdomTree that they had never even heard of ETFs or ETPs. 

The provider, which polled 1,000 UK retail investors in early February, found instead of investing in ETPs, 47 per cent of UK investors invested in single stocks and shares and 33 per cent in open-ended funds, while 32 per cent allocated to investment trusts.

Adria Beso, head of platforms distribution at WisdomTree Europe, said uptake was particularly slow in the UK retail space.

He said: “Despite the large growth in demand for ETFs and ETPs by professional investors, uptake has been slower in the retail market, and particularly in the UK when compared with other European countries like Germany.

"Confidence in knowing how and why to invest in ETFs and ETPs is low, leading to a lack of investment despite the fact they are easily traded, offer diversification and more transparency, and are low cost, all of which are important in the current economic backdrop."

Alan Chan, director and Chartered financial planner at IFS Wealth & Pensions, said he was not surprised by the findings.

"Financial education in the UK is fairly poor for a developed country," he said. "ETFs are not widely available on platforms and most people don’t need to use ETFs either, as simple unit trusts or Oeics will do the job just fine."

He added: "ETFs also incur additional trading fees as they’re treated like shares, unlike Oeics or unit trusts, so while some ETFs may have lower annual costs, they can work out to be more expensive especially for regular savings or those individuals that trade often."

Assets under management in ETFs remained at €1.4tn (£1.2tn), according to Morningstar, because of the dip in stock and bond market valuations triggered by the war in Ukraine and the rise in inflationary pressures.

Flows into ESG ETFs meanwhile accounted for about a third (30.4 per cent) of total flows.