ASX exchange-traded funds (ETFs) are all the rage among Gen Z investors, according to research.

ETFs are baskets of equities that provide easy diversification in a single trade for one brokerage fee.

The diversification provided by ETFs makes them less risky than individual ASX stock picking.

They are also a convenient way of gaining exposure to US shares and other international stocks without having to trade on overseas exchanges.

According to research by National Australia Bank Ltd (ASX: NAB), at least 40% of Gen Zs and 34% of Millennials have invested in at least one ETF.

Additionally, four of the five most popular investments among Gen Zs, who were born between 1996 and 2010, and Millennials, who were born between 1981 and 1995, were ETFs.

Why do Gen Zs prefer ETFs to single ASX stocks?

ETFs tracking the S&P/ASX 200 Index (ASX: XJO) and the S&P 500 Index (SP: .INX) accounted for more than 80% of Gen Z purchases and holdings in the 12 months to October, according to the nabtrade data.

NAB Director, SMSF and Investor Behaviour, Gemma Dale, said this indicated young investors understood the value of diversification and basic index investing.

Dale said:

ETFs are generally viewed as a 'set and forget' investment option, offering consistent returns compared to individual stock picking.

Dale said Gen Z investors were "staying informed, engaged, and proactive, turning their portfolios into dynamic engines of growth".

An example of their proactivity is watching the market and buying the dip in their ETFs whenever possible.

Buying the dip can lower the dollar-cost average price of a holding, be it an ETF or a single ASX stock.

Gen Z buys the dip on ASX ETFs

The nabtrade data shows a spike in ETF purchasing among young investors on days when the market fell significantly.

On days when the market fell by more than 1%, millennial investors increased their ETF buy orders by 45%, and Gen Z investors increased their buy orders by 49%.

Dale said:

The size of the jump in trades on down days is particularly noteworthy, as it is not common to see a 50% increase in any trading activity on a daily basis – this usually occurs with big stock moves.

… by deliberately buying the dip on a regular basis, these young investors can significantly boost their returns …

Dale said older investors typically managed existing direct share portfolios containing single ASX stocks.

FY24 trading data published by Selfwealth Ltd (ASX: SWF) shows similar trends to the nabtrade data.

Selfwealth said Gen Z clients showed "the greatest relative interest in ETFs of any age group" in FY24.

Eight of the top 10 most traded securities by volume among Selfwealth's Gen Z clients in FY24 were ETFs.

The most traded ETFs by volume were the Vanguard Australian Shares Index ETF (ASX: VAS), which tracks the S&P/ASX 300 Index (ASX: XKO), and the Vanguard Diversified High Growth Index ETF (ASX: VDHG).

The ETF with the highest buying conviction among Gen Zs was the iShares S&P 500 AUD ETF (ASX: IVV), which tracks the US benchmark S&P 500 Index.

About 86.1% of ASX IVV trades among Gen Z investors in FY24 were buy orders, according to the data.