The History of ETFs
How and When Did ETFs Come About?
It was a dark, rainy night in 1989. Okay, actually it wasn’t dark at all. In fact, it was a sunny day when the first ETF showed up in Canada as the Toronto Index Participation Fund (TIP 35). Flash forward to 1993 when the first Exchange Traded Fund appeared in the United States as the Standard & Poor’s 500 Depository Receipts (SPDRs). Asia followed suit in 1999 with its first ETF, the Hong Kong Tracker Fund. And last but not least (not really last either) was Europe’s Euro STOXX 50 market ETF launched in 2001.
How Many ETFs?
By 2002 there were 246 domestic and foreign ETFs across the globe. Europe led the league with 106, but the United States was not far behind with 102. Asia (including Japan) and Canada followed up with 24 and 14 ETFs respectively. So some nice international diversity with ETF choices.
And to put that in perspective, at the end of 2008, there were 747 exchanged trade funds. That’s up from 629 in 2007 and even after a record number of closed ETFs (46). 164 ETFs were launched in 2008 alone. And if we look at today's numbers, we have between 1500 and 2000 funds with almost $2 Trillion in assets. So the exchange traded product industry has really grown in both popularity and actual offerings.
Where Do All the ETFs Come From?
By the end of 2008, there was approximately $534 billion in ETF assets. And while that number is down 12% from 2007, it is still a respectable amount of money. But what you may not realize is that three major ETF designers hold an estimated 86% of those fund assets. Barclays Global Investors, SSgA, and The Vanguard Group combine to hold the largest concentration of ETFs. However, there are some up-and-coming ETF companies like iShares and RevenueShares. There’s also some companies who are closing down their ETF department like Northern Trust did in 2008.
What’s in the Future for ETFs?
What does the future hold for exchange traded funds? More ETFs. As of the beginning of 2009, Barclays is launching two ETFs to track the Volatility Index (VIX) and iShares is launching two bond ETFs. RevenueShares has six new ETFs in the mix and State Street is at the helm with a mortgage ETF and a Treasury Bill ETF.
And while exchange traded funds may be attractive for your portfolio, be sure to conduct thorough research before making any trades. Check the history of the ETF, understand the risks, watch the fund in action and see how it reacts to different market conditions. Also, take a look at what is in the fund as many ETFs may contain derivatives such as futures and options. And if you have any questions or concerns, be sure to consult a financial professional, such as a broker or advisor.
However, one you do make your decision, then good luck with all of your trades, especially now that you know the history.