Do Investors Understand Portfolios with ETFs? Investor Awareness of ETFs' Contributions to Portfolio Exposure

Exchange-traded funds (ETFs) have become a rapidly growing investment vehicle, with nearly a third of US investors holding ETFs. Despite their popularity, there is a concern that investors may not fully understand the complexities of ETFs, particularly regarding their exposure. This research evaluates whether conventional ETF-aggregated visualizations, which treat ETFs as standalone equities, effectively communicate the exposure of investors' portfolios. The study comprises two phases: developing a computer system that generates treemaps illustrating portfolio exposure to individual stocks, a feature not currently offered publicly, and conducting a survey among college students and postgraduates to assess their understanding of portfolio exposure using ETF-aggregated visualizations. The results reveal that traditional visualizations fall short in conveying portfolio exposure, with only 1.7% of survey participants accurately determining individual stock exposure. The main reason for this shortfall is the lack of practical knowledge about ETFs, with 91.6% of respondents unaware of how ETFs influence portfolio exposure.