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2016 | OriginalPaper | Chapter

1. Evolution and Outlook of the ETF Market: From a Trickle to a Mighty Roar

Author : A. Seddik Meziani

Published in: Exchange-Traded Funds

Publisher: Palgrave Macmillan UK

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Abstract

The quite laborious beginning of what many consider to be the first exchange-traded fund (ETF) belies the strong growth and market acceptance that ETFs have enjoyed for the past 15 years or so. After that first ETF finally took off in the late 1990s, it shepherded the rise of a new concept in indexing that is enjoying remarkable success to this day. ETFs have finally become a mainstream investment tool both for individual and for institutional investors.

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next chapter Characteristics of Exchange-Traded Funds: Weighting Myths and Realities

According to industry experts, the first U.S. ETF was designed and developed in the American Stock Exchange by Nathan “Nate” Most and Steven Bloom. http://www.sec.gov/Archives/edgar/data/1222333/000119312513023294/d473476dfwp.htm.

Note that Vanguard later replaced the Wilshire 5000 Total Market Index with the MSCI US Broad Market Index before another reshuffle in 2012, when it substituted the MSCI index for the seemingly cheaper CRSP US Total Market Index as the underlying benchmark for its VTI. The move was prompted by an ongoing struggle over ETF market share and the lower indexing costs of the Center for Research in Securities Prices (CRSP). This move doesn’t come as a surprise, however, since Vanguard has been collaborating with CRSP on the creation of a new set of investable indexes since 2009. CSRP is an investment research firm founded in 1960 at the University of Chicago.

According to ETFGI, an independent research firm and consultancy, the U.S. ETF/ETP industry has, since this chapter was completed, reported a total of 1,768 funds managing $2.3 trillion in assets at the end of August 2015, from 85 providers (http://www.etfgi.com).

Note that the Investment Company Act of 1940 also provides exemptive relief for ETFs designed to track a multiple of or an inverse of their index performance. ETFs that invest in physical commodities are also regulated by the SEC, but under the Securities Act of 1933. Those that invest in commodity futures are, on the other hand, regulated by the Commodity Futures Trading Commission (CFTC).

This is in spite of the Federal Reserve recently dropping its explicit assurances to the market that interest rates would remain low.

More recently, the Federal Reserve announced that it planned to raise rates in 2015.

Because currency ETFs are fairly inexpensive to trade, many investors are gradually showing a preference for them over the futures or forex markets.

Title: Evolution and Outlook of the ETF Market: From a Trickle to a Mighty Roar
Author: A. Seddik Meziani
Publisher: Palgrave Macmillan UK
Book: Exchange-Traded Funds
Print ISBN: 978-1-137-39094-3

Electronic ISBN: 978-1-137-39095-0

Copyright Year: 2016
DOI: https://doi.org/10.1057/978-1-137-39095-0_1