SPY, which is managed by State Street, “quickly became the template for an industry that now controls around $2 trillion of assets, almost as much as the hedge-fund sector,” The Economist reports. “The ETF is one of the more successful financial innovations in recent decades. Its success has been driven by two things: cheapness and convenience.”
“ETFs let investors diversify in ways that simply weren’t available 20 years ago,” Ross said.
“The earliest adopters of ETFs were using them in place of individual stocks,” he added. “You can buy SPY and get 500 stocks in one fund. You could buy a tech ETF and get 50 stocks in the sector with one trade. Previously, investors would maybe buy Microsoft, Dell and Apple and find out that wasn’t the best way to get exposure to the broader tech sector. The power of diversification is very strong.”
Full disclosure: Tom Lydon’s clients own SPY.