The world’s first ETF turns 20
30 January 2013
News, Asia, Global
By ETFI Asia
State Street Global Advisors (SSgA), the asset management business of State Street Corporation, today (January 30) marked the 20th anniversary of the world’s first exchange traded fund, which tracks the S&P 500 Index. Launched on January 29, 1993 with just US$6.5 million in assets, the ETF is now the world’s largest ETF with more than US$123 billion in assets under management, which includes all cross-listed AUM, and the world’s most actively-traded security with an average daily trading volume of 144 million shares. Since the introduction of the first ETF, a new industry was born that brought the ability for both institutional and individual investors to gain access to the same areas of the market at the same price.
James Ross, senior managing director and global head of SPDR exchange traded funds at SSgA, commented: “In 2012, the ETF industry continued to grow at a robust pace as measured by both assets under management and net new flows. It’s an honour to have been a member of the team that introduced the first ETF. It’s also tremendously rewarding to see the world’s first ETF recognised as one of the most investor-friendly innovations of our time and a major catalyst for the growth of the ETF industry. The humble beginnings of a fund that was mainly created for institutional investors to equitize their cash now includes more than 5,000 funds with nearly US$2 trillion in assets globally.”
SSgA marks this milestone with the release of its 2013 ETF & Investment Outlook: Finding Opportunities in an Age of Uncertainty, the underpinning of which highlights the increased accessibility and transparency of global investments through this industry-changing vehicle. The report provides a snapshot of the current investment industry, upcoming trends that investors should be aware of and how ETFs can be utilised to capitalise on the shifting dynamics in the global economy.
According to the research paper released by SSgA, investor sentiment remains cautious due to continued economic policy uncertainty, but the ample liquidity provided by central banks and their willingness to take innovative policy steps to boost the global economy could encourage a renewed interest in global equities in 2013.
In 2012, the global ETF industry saw nearly US$200 billion of positive flows over the first 11 months of last year with fixed income and emerging markets the categories receiving the largest inflows. In the Asia Pacific region, ETF assets grew nearly US$23 billion, a 20% increase from a year ago. Record investment flows into ETFs in 2012 were driven in part by investors flocking to the safety of cash and fixed-income investments. Also, recent strong flows into equity ETFs suggest an improvement in sentiment and a greater willingness among investors to take on risk.
The SSgA economics team expects 2013 to be about improved economic growth compared to 2012. Nevertheless, this reacceleration is off a relatively low starting point and one that is not particularly robust by historical standards. The debt overhang combined with austerity in much of the developed world is likely to put a damper on economic growth and will contribute to continued divergence next year, with the developed world growing an estimated 1.6% and the emerging economies by 5.5%. Within the developed world, they forecast that the US will grow by 2%, with Europe a more modest 0.3%. Germany will grow by 1.2%, but France’s output will only increase by 0.6% and Italy will contract by 0.5%.
Turning to Asia Pacific, 2013 should see strengthening economic growth, with the IMF forecasting that emerging Asia GDP growth will accelerate to 6.8%. The risks to the Asia Pacific economies are largely external: the eurozone and US fiscal cliff. The main swing factor is China, being a more important export market for most Asian economies than Europe. While Asian central banks may have to respond to accelerating growth in the latter part of 2013, the chances of monetary policy becoming significantly less accommodative appears low.
Frank Henze, head of SPDR ETFs, Asia Pacific said: “We believe that the Greater China ETF market will continue to move in a positive direction in 2013, mainly driven by improving outlook for China, more collaboration among the China, Hong Kong and Taiwan economies, as well as increasing adoption by the Hong Kong MPF community.”
In the research paper, the SSgA economic team has outlined specific implications for three potential scenarios including a bear case, bull case and base case scenario. The piece then goes on to present factors leading to each scenario and which global asset classes would best help investors navigate through each setting. Additionally, SSgA has identified two major investment themes for global investors to consider as they look for opportunities in 2013, which include the continuation of income from a total return perspective and the return of growth and the benefits of embracing equities and real assets.
Mr. Henze said: “We expect that many of the industry drivers over the last 20 years will also contribute to strong growth over the next 20. With global ETF asset growth averaging 27% per year, ETFs remain a preferred vehicle to express short- and long-term investment views across asset classes as wide ranging as Asian local currency bonds to commodities, like gold. The way in which various investors construct portfolios is very different today than it was twenty years ago due in part to SSgA’s innovation of the first ETF and the industry that was created by its launch. Over the next 20 years, there will be multiple economic cycles that feature both rising and declining markets and with ETFs, investors have a tool at their disposal to implement investment ideas.”
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