The exchange traded fund (ETF) industry has experienced rampant growth, expansion, and innovation since the launch of SPY (SPDR S&P 500 ETF Trust) by State Street Global Advisors in 1993. In just 25 years, they have become the most disruptive and popular vehicle in the investment industry. As a result of this popularity, the ETF market for U.S. – listed funds has amassed $3.5 trillion in assets with a total of roughly 2,200 funds available for retail and institutional investors. Globally, to include funds listed on exchanges outside the U.S., total ETF assets have reached $4.6 trillion.
Driven by relatively low fees, convenience, and transparency, the pace of growth in the ETF industry has been extraordinary. In the last 10 years alone, assets have grown by a compound annual growth rate of 23% per year, or 547% cumulatively. Net flows in 2017 reached their highest point at $466 billion, according to data from Morningstar. While SPY remains the industry’s largest ETF with $255 billion in assets under management, its share of the ETF market continues to shrink. In 2006, this ETF accounted for 16% of the entire space. Today, that number is just 7%. With no immediate hindrance to the pace of growth in sight, it’s not inconceivable that 7% will be cut in half sometime in the next three to five years, maybe even sooner.