Know the history of ETFs? Once an itsy-bitsy SPDR, index-based equity ETFs now draw huge inflows. A new infographic offers insight on $1.7 trillion in ETF assets.
“I never thought they would be this big,” said Nathan Most, the father of the Exchange-Traded Fund concept. “But the ETF was designed with the investor in mind, and they have low fees.”
Nate came up with the novel idea that mutual funds could be traded like stocks.
The very first financial institution to begin trading an ETF was State Street. Their SPDR S&P 500 (SPY) was launched in January 1993 with just $6.5 million in assets and announced ETFs to the world.
SPY had a humble approach: simply track the performance of the S&P 500. This meant monitoring a certain section of the market and offering investors the convenience of investing in one fund instead of 500.
State Street subsequently branched out, offering SPDR ETFs in market segments including gold, energy, emerging markets, and many others. It became clear that investors had a penchant for these investment vehicles, and many other asset managers followed suit. Barclays joined the ETF business in 1996 and Vanguard began offering ETFs in 2001. Today there are over 25 different issuers of ETFs.
From one fund in 1993, the ETF market has now grown to nearly 1,300 in the US alone.
SPY remains the most heavily traded exchange-traded fund today.
Without a doubt, substantial outflows from domestic equity mutual funds have gone to ETFs. The increasing awareness of the role of cost in investment outcomes has helped drive tremendous inflows to the ETF world, at least among US investors. Index funds in general are winning — last year, four out of the five funds with the largest inflows of money were index funds.
In the infographic below, we take a look at the overall size and growth of the ETF marketplace with data from the 2014 Investment Company Fact Book, released just weeks ago by ICI.