Since its inception, the Exchange Traded Products industry has rapidly evolved to broaden its product offerings to investors. On January 29 1993, the first ETF, the SPDR S&P 500 ETF Trust, listed on the American Stock Exchange, providing investors with intra-day access to a diversified portfolio of large cap domestic equities. The listing of SPY not only changed the way market participants could invest, but it also laid the groundwork for the ETP industry to expand to include a variety of products that offer exposure to different investment strategies and asset classes.
A second major milestone for the industry was the listing of the first international equity ETF. In March 1996, iShares launched the MSCI Mexico Investible Market Index fund, which provided investors a new means to access Mexican equities. Before this listing, the ETP industry was limited to domestic equity index funds. With the inclusion of international products, ETPs took a major leap forward by becoming a vehicle for efficiently accessing assets that were traditionally not available through basic retail brokerage accounts. Since this listing, over 500 international-based ETPs have launched, ranging from broad-based all-world indices, to emerging market, and country-specific products.
The development of the first fixed income ETF proved to be a major turning point for the industry as it expanded the ETP product offerings to include asset classes other than equities. In July 2002, iShares listed the Barclays 20+ Year Treasury Bond Fund which holds long term treasuries. With its first fixed income product, the ETP industry grew into a more complete product suite with solutions to a broader set of investors’ needs. Assets in fixed income products now represent over 16% of the total US ETP assets under management (AUM), demonstrating their growing importance in the ETP product line.
In a similar vein, the listing of the SPDR Gold Trust in November 2004, offered investors access to a new asset class, physical commodities, in the form of an exchange traded vehicle (ETV). The SPDR Gold Trust marked the ETP industry’s expansion into three major asset classes: equities, fixed income, and commodities. ETVs have since expanded beyond precious metals to include currencies, commodities, and commodity-futures.
The family of products that we refer to as Exchange Traded Products includes ETFs, ETVs, and ETNs (Exchange Traded Notes). The first ETN, the Barclays iPath GSCI Total Return Index, listed in June 2006. ETNs differ from ETFs in that they are debt instruments issued by banks, but are similar in that they attempt to track the return of indexes. ETNs can provide exposure to an extremely wide range of assets including equities, fixed income, currencies, and commodity futures.
2008, year 15 of the ETP industry, proved to be a pivotal year for ETPs and their issuers. On the product side, the first actively managed ETF, the Bear Stearns Current Yield, listed on the AMEX. The introduction of active products allowed investors the flexibility of intraday trading, with the assurances of a portfolio manager controlling the investments. On the market side, NYSE acquired the American Stock Exchange, including all of its listed ETPs. By December 2008, all Amex and NYSE ETPs had been transferred onto the NYSE Arca electronic trading platform, creating the largest venue for listing and trading ETPs in the US.
As a testimony to the success of the ETP industry, in 2010 the total combined assets under management for US ETPs zipped past $1 trillion. With ETFs, ETNs, and ETVs providing exposure to domestic and international equities, fixed income, physical commodities, commodity-futures, and currencies, it is clear that ETPs have become an essential tool to all types of market participants and investment strategies. By the 20 year mark, there are nearly 1500 ETPs with $1.35 trillion in total combined AUM.