Beautiful Virgin Islands

Thursday, Feb 22, 2024

The first ETF launched 30 years ago, revolutionizing investing

The first ETF launched 30 years ago, revolutionizing investing

Industry is bringing more exotic trading strategies to the masses

Thirty years ago, the launch of the first exchange-traded fund ushered in a new era of investing. Now, the industry is bringing exotic trading strategies to the masses.

The SPDR S&P 500 ETF Trust, which tracks the benchmark U.S. stock index, gave investors the ability to buy and sell hundreds of stocks through a single, publicly traded share for the first time.

The SPDR ETF and the funds that followed popularized the idea of simply following the market, a strategy known as passive investing.


A trader looks at his screen on the floor of the New York Stock Exchange June 29, 2010. Investors fled the U.S. stock market on Tuesday and the S&P 500 tumbled to its lowest level in eight months in a sell-off triggered by a wave of increasin

Today, there are ETFs tracking dozens of asset classes, sectors and investing themes. The funds are favored for their low fees and advantageous tax structure compared with traditional mutual funds. Their popularity continues to grow, even in the midst of a bear market.

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. "A whole generation of investors only thinks about using ETFs to get diversified exposure. They’ve opened up markets that previously were harder to obtain access to."

The industry is quickly expanding to include active management and more exotic investing products like leveraged and inverse funds. Proponents say the suite of cheap investing options has helped democratize investing. Others, noting the fast growth of risky ETFs that use leverage to amplify both returns and losses, are sounding the alarm about the potential fallout for inexperienced investors.

For years, ETFs have gained ground on mutual funds, the traditional broad-based investment option still favored by 401(k) retirement plans. That trend accelerated in 2022. U.S. ETFs took in almost $600 billion on a net basis in 2022, second only to 2021’s record inflow, according to data from Morningstar Direct. Investors pulled nearly $1 trillion from mutual funds. That marked the largest gap in flows between the funds on record.
Michael Sapir, CEO of ProShares, rings the opening bell celebrating ProShares Bitcoin Strategy ETF trading as BITO on the NYSE Arca, at the New York Stock Exchange (NYSE) in New York City, October 19, 2021. REUTERS/Brendan McDermid


To be sure, ETFs aren’t on track to overtake mutual funds soon. ETFs had $6.5 trillion in assets at the end of 2022, versus $16.3 trillion for mutual funds. The SPDR ETF, best known by its ticker symbol SPY, remains the largest ETF, a behemoth with roughly $370 billion in assets.

Most ETFs are similar to index-tracking mutual funds, with several key advantages. ETFs can be bought and sold throughout the trading day, unlike mutual funds, which price once daily at market close.


Perhaps most important, their fees are significantly lower. The average expense ratio for index equity ETFs was 0.16% in 2021, or $16 annually per $10,000 of investment funds, compared with 0.47% for equity mutual funds, according to the Investment Company Institute.

Last year’s market selloff likely provided a reminder for investors to reassess their portfolios, leading to further adoption of ETFs, said Matthew Bartolini, head of SPDR research at State Street Global Advisors, the asset manager behind SPY.

"When you have underperforming active managers with a high fee, and you’re getting hit with a capital-gains tax, that’s going to lead people to leave," Mr. Bartolini said.

The downturn gave savvy investors an opportunity for tax-loss harvesting—selling funds to realize a loss and writing it off for tax purposes. A popular tax-loss harvesting strategy is to sell a mutual fund and quickly purchase an ETF with similar holdings. That practice, known as a wrapper swap, allows investors to realize a loss for tax purposes while staying invested.

Also driving growth in ETFs is the emergence of active strategies and other new products. Passive strategies still made up 95% of the ETF market in 2022, according to Morningstar. But of the 431 new ETFs launched, more than half were active strategies, according to Mr. Rosenbluth. Active funds took in 15% of total ETF flows last year, nearing $100 billion, a record for active strategies.

Popular active ETFs include Cathie Wood‘s ARK Innovation, an active fund that invests in "disruptive" companies, primarily unprofitable firms in the tech sector. Shares of the fund, a favorite among individual investors that soared during the pandemic, plunged 67% in 2022.

Trader Gregory Rowe, center, and others work on the floor of the New York Stock Exchange Monday, March 16, 2020.


Yet despite the poor performance, investors continued to pour funds into ARK. Individual investors showed similar interest in other speculative ETF offerings, including leveraged funds, raising concern over whether the industry is making it too easy for individuals to make risky bets.

For example, the Direxion Daily TSLA Bear 1x Shares ETF, launched in August, aims to provide the exact inverse performance of Tesla Inc. shares. The ETF is the first based around a single stock, according to Mr. Bartolini of State Street. It is the latest example of ETFs allowing widespread access to the kind of trade that once was reserved for institutional or high-net-worth investors with access to Wall Street dealers.

"I hope for the sake of the investors who are using leveraged funds, they really have done their homework and understand the risks that are inherent with these products," said Elisabeth Kashner, director of global funds research at FactSet.

Newsletter

Related Articles

Beautiful Virgin Islands
London's Iconic British Telecom Tower Sold To Become Hotel
I have a dream, MLK inspiring speech
Ukraine Arrests Father-Son Duo In Lockbit Cybercrime Bust
Aretha Franklin, Marvis Staples - Oh Happy Day
US Offers $15 Million For Info On Leaders Of Cybercrime Group Lockbit
BVI Freedom Song
Russia Claims UK Cultural Agency Spied for Ukraine
Billy Preston - You Can't Beat God Giving (Live)
Apple warns against drying iPhones with rice
VIRGIN ISLANDS REGGAE CARIBBEAN RIDDIMZ
Alexei Navalny: UK sanctions Russian prison chiefs after activist's death
Oh Happy Day Edwin Hawkins - Anthony Brown w FBCG Combined Choir
German economy is in 'troubled waters' - ministry
'Stand by Me' performed by Karen Gibson and The Kingdom Choir
In a recent High Court hearing, the U.S. argued that Julian Assange endangered lives by releasing classified information.
National Anthem of the British Virgin Islands - Oh, Beautiful Virgin
New video
Hello Dolly
Tucker Carlson says Boris Johnson wants "a million dollars, in Bitcoin or cash, from Tucker Carlson to talk about Ukraine.
for KING & COUNTRY - Amen (Reborn) [feat. Lecrae & The WRLDFMS Tony Wi
Russia is rebuilding capacity to destabilize European countries, new UK report warns
Bob Marley - Get Up Stand Up
EU Commission wants anti-drone defenses at Brussels HQ
Yes He Can
Von der Leyen’s 2nd-term pitch: More military might, less climate talk
What A Friend We Have In Jesus
Global Law Enforcement Dismantles Lockbit Ransomware Operation
Unforgettable
Prince William Urges End to Gaza Conflict
Touch The Hem Of His Garment
UK court to hear Assange's final appeal against extradition to the US, where he faces charges related to his journalistic work—the publication of a classified video in 2010 that exposed US war crimes against humanity.
The Lord's Prayer
About 50-60% kids either chose to be YouTuber or influencer
THE GOD MOVEMENT...BEAUTIFUL BVI
A viral video of Nationals MP Barnaby Joyce lying on a Canberra footpath is celebrated by his media mates.
Siyahamba
European Countries React to Navalny's Death by Summoning Russian Diplomats
Ray Charles And The Voices Of Jubilaton, Oh, Happy Day
Israel has gone ‘beyond self-defence’ in Gaza, says Labour’s Streeting
Ramblin' Rose
English farmers to be offered ‘largest ever’ grant scheme amid food security concerns
Protoje - Who Knows ft. Chronixx
Cameron government knew Post Office ditched Horizon IT investigation
Pressure - Virgin Islands Nice
EU Calls for Immediate Ceasefire in Gaza Conflict
Phil Wickham - House Of The Lord
EU Vows To Hold Putin "Accountable" After Meeting Alexei Navalny's Wife
My God Is Real (Yes, God Is Real)
EU Launches Probe Into TikTok Over Child Protection Under Digital Content Law
The Lion King Circle of Life by LEBO M. — LIVE at the HAVASI Symphonic
The EU Initiates Naval Mission to Defend Red Sea Trade Routes
Louis Armstrong - When The Saints Go Marching In
EU and UK Announce Joint Effort on Migration
Kanye West Sunday Service - hallelujah, salvation, and glory
Brazil's Lula Likens Gaza Operation to Holocaust, Israel Says "Red Line" Crossed
Jonathan Nelson - I Believe (Island Medley
Ministers Confirm Proposal to Prohibit Mobile Phone Usage in English Schools
From The Virgin Islands Sqad Up
Microsoft-backed OpenAI valued at $80bn after company completes deal
Common, John Legend - Glory
‘Alexei would want to tell Russia not to give up fighting’
Anthony Evans vs. Jesse Campbell - If I Ain't Got You
Rwandan Footballer's Dismissal Sparks Concerns Over UK Asylum Plan
I have a dream, MLK inspiring speech
Whisky Challenges China's Baijiu Market During New Year Celebrations
Aretha Franklin, Marvis Staples - Oh Happy Day
Avdiivka - Symbol Of Ukrainian Resistance Now In Control Of Russian Troops
BVI Freedom Song
Putin Critic Alexei Navalny's "Killers" Refusing To Hand Over Body, Say Allies
Billy Preston - You Can't Beat God Giving (Live)
"Historic Step": Zelensky Signs Security Pact With Germany
VIRGIN ISLANDS REGGAE CARIBBEAN RIDDIMZ
"Historic Step": Zelensky Signs Security Pact With Germany
Oh Happy Day Edwin Hawkins - Anthony Brown w FBCG Combined Choir
20 Tech Giants Sign Effort To Fight AI Election Interference Across Globe
'Stand by Me' performed by Karen Gibson and The Kingdom Choir
Joe Biden Accuses Putin of Causing Navalny's Death
National Anthem of the British Virgin Islands - Oh, Beautiful Virgin
Russian opposition leader Alexey Navalny has died at the Arctic prison colony
Hello Dolly
Tucker Carlson grocery shopping in Russia. This is so interesting.
for KING & COUNTRY - Amen (Reborn) [feat. Lecrae & The WRLDFMS Tony Wi
Julian Assange's Wife Warns of His Death if Extradited to US
Bob Marley - Get Up Stand Up
‘A lot higher than we expected’: Russian arms production worries Europe’s war planners
Yes He Can
Greece Legalizes Same-Sex Marriage and Adoption Rights
What A Friend We Have In Jesus
Hungarian Foreign Minister: Europeans will lose Europe, the Union's policy must change drastically
Unforgettable
In Britain Homeowners are receiving CPO’s (Compulsory Purchase Orders) so their homes can be redistributed to migrants
Touch The Hem Of His Garment
Microsoft says it caught hackers from China, Russia and Iran using its AI tools
The Lord's Prayer
Influencers Exploit X Platform for Profit Amidst Israel-Gaza Conflict
THE GOD MOVEMENT...BEAUTIFUL BVI
Former Dutch PM And Wife Die "Together Hand In Hand" Via Duo Euthanasia
Siyahamba
Media Giant Paramount Global, Which Owns CBS News, To Cut 800 Jobs
Ray Charles And The Voices Of Jubilaton, Oh, Happy Day
×