The first ETF is 30 years old this week. It launched a revolution in low-cost investing (2024)

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(An excerpt from the book, "Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange," by BobPisani.)

Thirty years ago this week, State Street Global Advisors launched the Standard & Poor's Depositary Receipt (SPY), the first U.S.-based Exchange Traded Fund (ETF),which tracked the S&P 500.

Today, it's known as the , or just "SPDR" (pronounced "Spider").Itis the largest ETF in the world with over $370 billion in assets under management, and is also the most actively traded, routinely trading over 80 million shares daily with a dollar volume north of $32 billion every day.

How ETFs differ from mutual funds

Holding an investment in an ETF structure has many advantages over a mutual fund.

An ETF:

  • Can be traded intraday, just like a stock.
  • Has no minimum purchase requirement.
  • Has annual fees that are lower than most comparable mutual funds.
  • Are more tax efficient than a mutual fund.

Not a great start

For a product that would end up changing the investment world, ETFs started off poorly.

Vanguard founder Jack Bogle had launched the first index fund, the Vanguard 500 Index Fund, 17years before, in 1976.

The SPDR encountered a similar problem. Wall Street was not in love with a low-cost index fund.

"There was tremendous resistance to change," Bob Tull, who was developing new products for Morgan Stanley at the time and was a key figure in the development of ETFs, told me.

The reason was mutual funds and broker-dealers quickly realized there was little money in the product.

"There was a small asset management fee, but the Street hated it because there was no annual shareholder servicing fee," Tull told me. "The only thing they could charge was a commission. There was also no minimum amount, so they could have got a $5,000 ticket or a $50 ticket."

It was retail investors, who began buying through discount brokers, that helped the product break out.

But success took a long time. By 1996, as the Dotcom era started, ETFs as a whole had only $2.4 billion in assets under management. In 1997, there were a measly 19 ETFs in existence. By 2000, there were still only 80.

So what happened?

The right product at the right time

While it started off slowly, the ETF business came along at the right moment.

Its growth was aided by a confluence of two events: 1) the growing awareness that indexing was a superior way of owning the market over stock picking; and 2) the explosion of the internet and Dotcom phenomenon, which helped the S&P 500 rocket up an average of 28% a year between 1995 and 1999.

By 2000, ETFs had $65 billion in assets, by 2005 $300 billion, and by 2010 $991 billion.

The Dotcom bust slowed down the entire financial industry, but within a few years the number of funds began to increase again.

The ETF businesssoonexpanded beyond equities, into bonds and then commodities.

On November 18, 2004, the StreetTracks Gold Shares (now called SPDR Gold Shares, symbol GLD) went public. It represented a quantum leap in making gold more widely available. The gold was held in vaults by a custodian. It tracked gold prices well, though as with all ETFs there was a fee (currently 0.4%). It could be bought and sold in a brokerage account, and even traded intraday.

CNBC's Bob Pisani on the floor of the New York Stock Exchange in 2004 covering the launch of the StreetTRACKS Gold Shares ETF, or GLD, now known as the SPDR Gold Trust.

Source: CNBC

Staying in low-cost, well-diversified funds with low turnover and tax advantages (ETFs) gained even more adherents after the Great Financial Crisis in 2008-2009, which convinced more investors that trying to beat the markets wasalmost impossible, and that high-cost funds ate away at any market-beating returns most funds could claim to make.

ETFs: poised to take over from mutual funds?

After pausing during the Great Financial Crisis, ETF assets under management took off and have been more than doublingroughlyevery five years.

The Covid pandemic pushed even more money into ETFs, the vast majority into index-based products like those tied to the S&P 500.

From a measly 80 ETFs in 2000, there are roughly 2,700 ETFs operating in the U.S., worth about $7 trillion.

The mutual fund industry still has significantly more assets (about $23 trillion), but that gap is closing fast.

"ETFs are still the largest growing asset wrapper in the world," said Tull, who has built ETFs in 18 countries. "It is the one product regulators trust because of its transparency. People know what they are getting the day they buy it."

Note: Rory Tobin, Global Head of SPDR ETF Business at State Street Global Advisors, will be on Halftime Report Monday at 12:35 PMand again at 3 PM Monday on ETFedge.cnbc.com.

The first ETF is 30 years old this week. It launched a revolution in low-cost investing (2024)

FAQs

The first ETF is 30 years old this week. It launched a revolution in low-cost investing? ›

Thirty years ago this week, State Street Global Advisors launched the Standard & Poor's Depositary Receipt (SPY), the first U.S.-based Exchange Traded Fund (ETF), which tracked the S&P 500. Today, it's known as the SPDR S&P 500 ETF Trust , or just “SPDR” (pronounced “Spider”).

What was the first ETF launched 30 years ago revolutionizing investing? ›

Few could have predicted the SPDR fund's impact when it launched on Jan. 22, 1993. “At the time, it was not a watershed moment, but it's now hard to imagine investing without ETFs,” said Todd Rosenbluth, an industry veteran and head of research at VettaFi.

What was the first ETF launched in the US? ›

The first ETF ever listed in the U.S. dates back from 1993 and is now a landmark ETF (SPY) ETF growth started on the back of passive investing and the first generation of ETFs were tracking market indices.

What was the first ETF in 1993? ›

The first ETF was launched in Canada in 1990, which paved the way for the introduction of the first U.S. ETF, the SPDR S&P 500 ETF Trust, in 1993. Designed to offer investors the diversification of a mutual fund with the flexibility of stock trading, ETFs took time before they started to grow rapidly in popularity.

When was the first active ETF launched? ›

The first active ETF was launched in 2008. Since then, a lot of innovation has happened in the active ETF market. There are now 19 ETF issuers offering active ETFs – a number that has tripled over the last five years.

What was the first ETF in history? ›

The world's first ETF was created in Canada in 1990, transforming the investment landscape and offering the advantages of pooled investing and trading flexibility. In their early days, ETFs were used primarily by institutional investors to execute sophisticated trading strategies.

What is the oldest ETF in the S&P 500? ›

When was SPY created? SPY was created on January 22, 1993. It was the first US ETF to be listed on a national stock exchange, and it remains the most widely traded ETF in the world.

Who started the first ETF? ›

ETF Inventor Nate Most's Keys:

Inventor of the ETF structure, arguably the most important financial innovation of modern times. Created the first and still-largest ETF, the SPDR S&P 500 Trust.

When was the first S&P 500 ETF? ›

The SPDR® S&P 500® ETF (SPY), a basket of securities tracking the performance of the S&P 500® Index, made its debut in 1993 as the first US-listed ETF.

When was the first ESG ETF launched? ›

Since the launch of the first ESG ETF in 2002, the iShares MSCI A ESG Select ETF, the number and diversity of products have increased steadily.

Who invented Qqq? ›

Invesco QQQ (best known by its ticker symbol, QQQ; full fund name Invesco QQQ Trust, Series 1), is an exchange-traded fund created by Invesco PowerShares. QQQ tracks the performance of the Nasdaq-100.

What is the oldest 3X ETF? ›

Direxion launched its first leveraged ETFs in 2008. In November 2008 the company was the first to offer ETFs with 3X leverage, a move that was copied some months later by its competitors ProShares and Rydex Investments.

Is SPY better than voo? ›

While the two ETFs follow the same strategy, they earn different ratings. VOO earns a top rating of Gold, while SPY earns the next best rating of Silver. Almahasneh says the reason is fees. VOO charges 0.03%, while SPY charges 0.09%.

What happened to ETFs in 2008? ›

Indeed, one of the biggest stories to come out of the crisis is the rise in exchange-traded funds. While ETFs first arrived in 1993, they didn't gain in popularity until after the recession. In 2008, U.S. investors had $531 billion in ETFs; that's jumped to more than $3.4 trillion today, according to Statistica.

What was the first S&P ETF? ›

The SPDR® S&P 500® ETF (SPY), a basket of securities tracking the performance of the S&P 500® Index, made its debut in 1993 as the first US-listed ETF.

When was VTI ETF created? ›

The Vanguard Total Stock Market ETF (VTI) tracks the performance of the CRSP U.S. Total Market Index. The fund has returned 510% since its inception in 2001 (as of Feb. 11, 2024).

What was the first 3X leveraged ETF? ›

Direxion launched its first leveraged ETFs in 2008. In November 2008 the company was the first to offer ETFs with 3X leverage, a move that was copied some months later by its competitors ProShares and Rydex Investments.

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