<font color=red> At Morningstar </font> Clients eager to use ETFs — but don't understand them

Exchange traded funds are in the right place at the right time, according to the results of an investor survey conducted by Charles Schwab Corp. The research, conducted in August, found that 44% of more than 1,000 individual investor respondents plan to increase their investment in ETFs over the next 12 months. The survey specifically targeted investors with at least $25,000 in investable assets and a familiarity with ETFs. Only 2% of respondents said they plan to decrease their ETF investments. (Click on the following link to see the ETFs investors are fleeing). The findings are scheduled for release Thursday morning in Chicago at the start of the Morningstar ETF Invest Conference. According to the research, the boom in interest is driven in part by a distinct set of benefits unique to the product. ETF investors identified the biggest benefit as the ability to trade like stocks, while those considering ETFs cited diversification as a top benefit. The survey also uncovered gaps and potential pitfalls that the ETF industry will likely need to address. At the top of the list: 46% of respondents described themselves as “ETF novices.” Indeed, a quarter of all respondents confessed to not fully understanding the ETF cost structure or how to most effectively use them as part of an investment strategy. Only 8% of ETF owners consider themselves experts on ETFs, and they described the top challenge as being too many choices. “Individual investors are attracted to the efficiency and flexibility of ETFs, but many do not have a solid grasp on how they work,” said Beth Flynn, vice president of ETF platform management at Schwab. “As more flavors of ETFs come to market, it is clear that the emphasis on education will be more important than ever,” she added. According to the survey, cost is the most important factor to investors when choosing an ETF, followed by performance history and reputation of the ETF sponsor firm. “Individual investors are simply not satisfied with their own knowledge of ETFs and want to learn more,” Ms. Flynn said. “This combination of high investor demand for ETFs with low understanding makes an obvious case for more tools and better education across the investment spectrum.”