SPDR S&P 500 ETF ‘Changed the Way Stocks Trade’

ETF Trends

The $127 billion SPDR S&P 500 ETF (SPY) is celebrating its 20th birthday on Tuesday. The first U.S. exchange traded fund — which listed on Jan. 29, 1993 – is the most traded equity security in the world.

“Looking back on these 20 years, it’s pretty amazing the impact that SPY and ETFs in general have had on the investment community, investors and financial advisors,” said Jim Ross, global head of the ETF business at State Street Global Advisors, in a telephone interview. “ETFs have changed the way stocks trade and changed the way people look at the market and diversification.” [SPDR S&P 500 Marks Two Decades of ETF Growth]

The State Street executive also pointed out that ETFs have created thousands of jobs in the financial industry

Ross was at the New York Stock Exchange on Tuesday to help ring the closing bell and mark SPY’s 20th anniversary. He also serves as chairman of the ETF committee at the Investment Company Institute.

The launch of SPY, known as “Spiders” among traders, in the early 1990s was the opening salvo of a revolution in markets and investing. ETFs are baskets of securities that started out as index funds that could be traded in real time. They are known for their low costs, tax efficiency and liquidity. The financial products let investors buy entire segments of the equity, bond and commodity markets with one trade. ETFs have also branched out to other areas such as currencies and active strategies. [SPDR S&P 500 Eyes 20th Birthday After Record ETF Flows]

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.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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