This week marks the 30th birthday of SPDR S&P 500 ETF Trust (SPY), the first-ever U.S. exchange-traded fund that ignited a new asset class and brought diversified portfolios to the masses.
Three decades later, the revolution is still going strong. The U.S. is now home to over 3,000 ETFs. While simple index funds that track the market still lead the pack, the ecosystem has evolved dramatically, spawning ever more themed, leveraged, and inversed funds that offer intricately niche trading strategies.
ETFs have found broad appeal among retail investors as a low-fee, tax-efficient alternative to the traditional mutual fund. They are custom-made investment vehicles for a passive “buy the market” strategy that can deliver outsized gains for investors who can stay the course over a multi-decade time horizon.
“At the time, it was not a watershed moment, but it’s now hard to imagine investing without ETFs,” Todd Rosenbluth, an industry veteran and head of research at VettaFi, told the Wall Street Journal. “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.”
It took State Street Global Advisors (SSGA) three years to convince the U.S. Securities and Exchange Commission to give its experimental fund the green light. Even after it hit the market, the reception on Wall Street was lukewarm. After a slow period in which management considered delisting, SPY finally found its feet and crossed $1 billion in assets under management (AUM) in 1996. Fast forward to today, and the fund manages $371 billion in assets.
Still on Top
Thirty years since SPY set sail, it remains a revered pioneer and the nominal figurehead of the industry, what Financial Times’ Robin Wigglesworth has dubbed the industry’s “Helen of Troy” as the “fund that launched a thousand ETFs.”
Yet the ETF battlefield is becoming increasingly contested between the two industry titans, Vanguard and Blackrock, which Bloomberg’s Eric Balchunas describes as the “King Kong and Godzilla” of the ETF world.
As investment firms, both Vanguard and Blackrock have more in total AUM, though State Street’s SPY remains the largest single fund.
Blackrock’s iShares Core S&P 500 ETF (IVV) and Vanguard’s S&P 500 ETF (VOO) also track the S&P 500 index and do it on the cheap. Their Total Expense Ratio is 0.03% – less than a third the cost of SPY’s, at 0.945%.
By undercutting Street State on fees, Blackrock and Vanguard’s S&P trackers are closing in, but Vanguard is catching up fastest. Over the past twelve months, $44 billion has flowed to VOO and $27 billion to IVV, while SPY has brought in just $3 billion, according to ETFLogic. IVV is currently at around $300 billion AUM, while VOO is slightly further back, at around $270 billion.
ETF Takeover
Regardless of who’s on top, there is still room for the whole industry to grow. Despite the broad stock market route in 2023, investors still poured $867 billion into ETFs, and diverted a record $950 billion away from mutual funds.
Beating out mutual funds won’t happen overnight, though. While ETFs had $6.5 trillion in assets by the end of last year, mutual funds still controlled $16.3 trillion.
SPY’s thirty-year anniversary is an ideal milestone to look back on all it has achieved.
Since its inception, SPY has clocked an average annual total return of 9.53%. In the past 30 years, the price of the SPY fund has climbed from around $43.61 to $400.93. An initial $1,000 investment in SPY in January 1993, with dividends reinvested, would now be worth around $17,437.
This article was produced by and syndicated by Wealth of Geeks.
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