Gen Y investors in the driver seat of ETF growth

Exchange-traded funds are all the rage with kids these days. A recent survey of investors with more than $100,000 in investible assets found that members of Generation Y are by far the most prevalent users of ETFs. More than 40% of Gen Y investors said they own at least one ETF, compared with just 19% of Generation X investors and around 10% of baby boomers, according to the 2012 Cogent Research LLC Investor Brandscape Report released this month. The Cogent report also suggests that younger investors are just starting to use ETFs. Seven out of 10 Gen Y investors — loosely defined as those born in the late 1970s through around 2000 — said they purchased their first ETF within the last 12 months, while just 20% of all investors said they'd done the same. The main reason younger affluent investors are being drawn to ETFs is most likely their advisers, said Meredith Lloyd Rice, senior project director at Cogent. Investors who use advisers are more likely to use ETFs, she said, and Gen Y investors are the most likely age group to use an adviser, according to the study. More than 80% of investors in this group use an adviser, Cogent found, compared with 65% of all affluent investors surveyed. The younger crowd is most likely to be using an adviser in the insurance or bank channel. Ms. Rice suspects that's because the majority of affluent Gen Y investors are probably dealing with inherited wealth. Although Gen Y investors are the most likely to own at least one ETF, they trail their elders in how much they have allocated to ETFs. Baby boomers who use ETFs have about 20% of their assets in the funds, double the incidence with the Gen Y crowd. The room to increase those assets could be a big driver in the future growth of ETFs, according to Ms. Rice. “It bodes well,” she said.