ETF Lessons for a New Era | ETF Trends

Warren Buffett once famously said: “Someone is sitting in the shade today because someone planted a tree a long time ago.”

Milestones in life and in investing have a way of getting us to stop and think about decisions made that brought us here. As I join the research team at TMX VettaFi this week — thank you for the industrywide warm welcome, by the way! — Buffett’s notion got me thinking about how time and network impact outcomes.

Take ETFs, for example.

There are today more than 300 ETF firms in the U.S. market offering more than 3,400 funds that command $8.7 trillion in combined assets. It’s a big tree offering a lot of shade to a lot of investors who, perhaps, 30-some years ago, weren’t accessing markets the way they do today.

ETFs were born of a problem-solving mindset that sought to facilitate intraday trading in an investment vehicle — something mutual funds couldn’t do. The original design of the creation/redemption mechanism that allowed for that trading led to brilliant tax efficiency, to boot.

The first U.S.-listed ETF, the SPDR S&P 500 ETF Trust (SPY), was the seed to a wave of product development that has delivered transparent, lower cost, liquid, tradable, and tax-efficient investment vehicles across asset classes and markets. (You can tour the entire universe of ETFs in our screener here.)

The ETF was a great original idea, but ask anyone who was around then, and they’ll tell you that when SPY arrived, no one was quite sure the fund would make it.

Give it time.

The Compounding Power of Time

If we go back about 15 years ago, to 2009 — the year I first learned about ETFs and fell in love with the space — U.S.-listed ETFs were nearing $800 billion in total assets.

On the heels of the financial crisis, we were feeling successful, as ETFs proved resilient during the market’s turmoil, and big firms like Schwab and Pimco were entering the ETF marketplace while other big names looked to follow suit. (Some of the big new ETF entrants that year included the Schwab U.S. Large-Cap ETF (SCHX) and the PIMCO Enhanced Short Maturity Active ETF (MINT) — stalwarts today.)

The conversation then was an eager countdown to the industry’s first $1 trillion. From then to now, the ETF asset base has grown more than tenfold. Consider that if Bank of America’s 2019 prediction that a $50 trillion ETF market could be here within a decade, we could now be a short five years away from another fivefold asset increase.

Front Row Seat

How tall this tree has grown! I feel very fortunate to have had a front row seat to all the action and to have grown with it. As we look to the future of ETF investing, time remains a key asset. Time compounds. ETF assets compound. Seeds turn to big trees overtime, and the shade grows more generous with its reach.

As long as ETFs stay true to their original mindset of solving investor problems, growth is the only path forward. Current product development suggests that’s the most likely case.

We are still just scratching the surface on providing access to unique strategies like trend following (see the Blueprint Chesapeake Multi-Asset Trend ETF (TFPN)) and return stacking (funds like Return Stacked U.S. Stocks & Managed Futures ETF (RSST)), as well as to packaged trades like options-based portfolios (funds like JPMorgan Equity Premium Income Fund (JEPI) and YieldMax TSLA Option Income Strategy ETF (TSLY)), among others.

All About the ETF Network

Success in life — and in investing — is also tied to the power of network. ETFs are a great example of that.

We talk about ETFs as an ecosystem, and there’s a reason for that. It takes a village to launch and run an ETF. That village includes providers, market makers, authorized participants, custodians, portfolio managers, attorneys, compliance teams, wholesalers, marketers. And the list goes on. ETFs require teamwork, and good teamwork requires collaboration. Friends are competitors and competitors are friends in the ETF world. It’s a big, powerful network that works as a tight-knit community. We all know each other.

As I join the TMX VettaFi team, which is a force in its commitment to ETF research and education, I’m reminded of — and grateful for — what brought me here, and how time and a strong network continue to play a big role on that path. I’m thrilled for the opportunity to continue to be a part of the ETF conversation.

Now let’s get to work. This past week alone, 15 new ETFs came to market. So there’s a lot of research and due diligence to be done. Let’s go!

For more news, information, and analysis, visit VettaFi | ETF Trends.