What is the history of ETFs?

 

The history of ETFs is really a story of pooled investing that goes back to the first closed-end fund invented by a Dutch merchant in 1774. A century and a half later the first open-ended mutual fund was created, offering investors the ability to buy and sell shares on a daily basis. In 1990 the world's first ETF was created in Canada, transforming the investment landscape and offering the advantages of pooled investing and trading flexibility.

U.S. ETF growth

Demand continues to grow as both retail and institutional investors depend on ETFs.

1993 – First U.S. ETF

The first ETF in the United States was launched in 1993. In their early days, ETFs were used primarily by institutional investors to execute sophisticated trading strategies. Soon afterward, individual investors and financial advisors embraced ETFs.

2002 – First bond ETF introduced

Bond ETFs are tremendously popular exchange-traded products that seek to track various bonds. It may be surprising that bond ETFs were not released earlier.

2003 – First alternatively weighted ETF

The first ten years of the ETF industry were marked by the development of traditional market-cap-weighted ETFs before alternatively weighted ETFs appeared in 2003.

2004 – First non-1940 Act ETF

Up until 2004 all U.S. ETFs were registered under the Investment Company Act of 1940. However, the 1940 Act prohibits investments in commodities and currencies, so the first commodity ETF was formed as a non-1940 Act legal structure.

2007 – A peak year for ETF creation

Investor demand continued to drive ETF growth, with a record 269 ETFs being introduced.

2008 – First active ETF

In 2008 the Securities and Exchange Commission approved an actively managed ETF for the first time. Actively managed ETFs represent a small portion of the U.S. and international ETF market.

2010 – U.S. ETFs hit $1.0 trillion in assets

At the end of 2010, assets under management in U.S. ETFs reached $1.0 trillion, invested in more than 1,100 ETFs, according to ETF.com. One of the most significant drivers of ETF growth has been the shift from traditional commission-based financial advice models to fee-based structures. Many financial advisors have embraced ETFs as a flexible, low-cost way to implement and rebalance diversified allocation models for their clients.

2012 – Record number of ETFs liquidated

With the departure of two sponsors from the U.S. ETF market, 81 ETFs were liquidated.

2014 – Record issuance of ETFs

Driven in part by institutional demand, global ETFs saw a record $241 billion of net issuance in 2014.

2015 – ETF market continued to grow

A total of 258 new ETFs in the U.S. were introduced in 2015, while U.S. ETF assets reached $2.1 trillion.

2016 – Another record year for closures

A record U.S.-listed 128 ETFs stopped trading even as the number of ETFs continued to grow. ETF AUM grew to $2.5 trillion.

2017 – Bond ETFs find broad acceptance

Record cash flows: $460 billion in U.S.-listed ETFs, with more than $100 billion in fixed income. Record U.S. AUM: $3.4 trillion.

U.S. ETF growth
  • First U.S. ETF
    The first ETF in the United States was launched in 1993. In their early days, ETFs were used primarily by institutional investors to execute sophisticated trading strategies. Soon afterward, individual investors and financial advisors embraced ETFs.
  • First bond ETF introduced
    Bond ETFs are tremendously popular exchange-traded products that seek to track various bonds. It may be surprising that bond ETFs were not released earlier.
  • First alternatively weighted ETF
    The first ten years of the ETF industry were marked by the development of traditional market-cap-weighted ETFs before alternatively weighted ETFs appeared in 2003.
  • First non-1940 Act ETF
    Up until 2004 all U.S. ETFs were registered under the Investment Company Act of 1940. However, the 1940 Act prohibits investments in commodities and currencies, so the first commodity ETF was formed as a non-1940 Act legal structure.
  • A peak year for ETF creation
    Investor demand continued to drive ETF growth, with a record 269 ETFs being introduced.
  • First active ETF
    In 2008 the Securities and Exchange Commission approved an actively managed ETF for the first time. Actively managed ETFs represent a small portion of the U.S. and international ETF market.
  • U.S. ETFs hit $1.0 trillion in assets
    At the end of 2010, assets under management in U.S. ETFs reached $1.0 trillion, invested in more than 1,100 ETFs, according to ETF.com. One of the most significant drivers of ETF growth has been the shift from traditional commission-based financial advice models to fee-based structures. Many financial advisors have embraced ETFs as a flexible, low-cost way to implement and rebalance diversified allocation models for their clients.
  • Record number of ETFs liquidated
    With the departure of two sponsors from the U.S. ETF market, 81 ETFs were liquidated.
  • Record issuance of ETFs
    Driven in part by institutional demand, global ETFs saw a record $241 billion of net issuance in 2014.
  • ETF market continued to grow
    A total of 258 new ETFs in the U.S. were introduced in 2015, while U.S. ETF assets reached $2.1 trillion.
  • Another record year for closures
    A record U.S.-listed 128 ETFs stopped trading even as the number of ETFs continued to grow. ETF AUM grew to $2.5 trillion.
  • Bond ETFs find broad acceptance
    Record cash flows: $460 billion in U.S.-listed ETFs, with more than $100 billion in fixed income. Record U.S. AUM: $3.4 trillion.

Sources: Bloomberg; Investment Company Institute; Morningstar, Inc.; and ETFGI.com, as of December 31, 2017.

All investing is subject to risk, including possible loss of principal.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

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