ETF in Review - 30 Years Anniversary

SPDR - 30 Years Performance

The ETF industry marked its 30th anniversary since the world's first ETF (SPDR S&P 500 Trust) was launched in 1993.

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

Since the 1st ETF inception, there have been thousands ETF creations and closures, cementing its popularity as an investment vechicle.

PASSIVE INVESTING AND DIVERSIFICATION

The SPDR ETF and subsequent funds popularized the concept of simply following the market, also known as passive investing.

ETFs offer investors a low cost way to invest in different "themes" or track indexes, with ETFs attracting the bulk of inflows at the expense of mutual funds.

To be sure, ETFs are not on track to replace mutual funds anytime soon. At the end of 2022, ETFs had $6.5 trillion in assets, while mutual funds had $16.3 trillion. The SPDR ETF, best known by its ticker symbol SPY, is still the largest ETF, with approximately $370 billion in assets.

To be sure, ETFs are not on track to replace mutual funds anytime soon. At the end of 2022, ETFs had $6.5 trillion in assets, while mutual funds had $16.3 trillion. 

The SPDR ETF, best known by its ticker symbol SPY, is still the largest ETF, with approximately $370 billion in assets.

LOW FEES

Perhaps most importantly, their fees are much lower. According to the Investment Company Institute, the average expense ratio for index equity ETFs in 2021 was 0.16%, or $16 per $10,000 invested, compared to 0.47% for equity mutual funds.

ETF TRADING BECOMING POPULAR

The introduction of active strategies and other innovative products is fueling growth in ETFs. According to Morningstar, 95% of the ETF market in 2022 was still dominated by passive methods. However, more than half of the 431 new ETFs introduced were active strategies.

TAKE CAUTION

Despite the growth of ETFs, it is important for investors to be aware of sector concentration, as broad market ETFs may not provide higher returns and ETFs that track a narrow theme may not perform well.

Investors should study the best companies in a particular industry before investing in an ETF for that industry.

P.S.

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