On Jan. 22, 2018, thousands of members of the ETF industry will be enjoying the second day of the 11th annual Inside ETFs Conference in Hollywood, Florida.
On Jan. 22, 1993, however, there was no such thing as the ETF industry. The first – and for a while, only – ETF launched that day, an event that at the time seemed insignificant but in hindsight represented a watershed moment for the investing community.
The SPDR S&P 500 ETF Trust (SPY) celebrates its 25th birthday this year and every investor, financial advisor and ETF issuer out there owes a lot to SPY.
While Nottingham’s existence predates SPY, initially it wasn’t something we paid much attention to because of our initial focus on the mutual fund industry. It was only in the late 90s that I realized the fund represented a paradigm shift that would shape investors for decades to come.
Think about how much the process of investing has changed. Whereas initially there were a handful of index funds that followed SPY, today we are staring down the barrel of cryptocurrency ETFs, actively managed ETFs and even marijuana ETFs! My, how far we’ve come.
I liken the advent of SPY to the first computer. The first computer filled up an entire room and could only accomplish very limited tasks. But it represented a groundbreaking, significant moment – just like the creation of SPY.
Certainly, the past quarter-century has upended the investment industry. So what do the next 25 years hold?
- Smart beta: Already something that is disrupting ETFs, we will continue to see managers utilize the convenience of the ETF structure and apply smart beta strategies.
- Mutual funds will continue to lose market share: While we don’t anticipate mutual funds ever going extinct, we do believe that ETFs will continue to overtake them and eventually capture more market share.
- The race to zero will slow down: It makes sense for index funds to charge a very low fee, but the economics don’t work for active. ETFs are expected to have a cost-efficient structure, but issuers need to hire top talent to manage an active strategy. We need to change the conversation about returns to account for the cost of attracting the most brilliant active managers.
As the ETF industry descends upon The Diplomat in Florida to celebrate, learn and network, we can owe it all to SPY.