By John Gabriel
Happy birthday wishes are in order for Standard & Poor's Depositary Receipts (SPDR), which launched on the American Stock Exchange on Jan. 29, 1993. Today known as SPDR S&P 500 ETF (SPY), this industry pioneer has just celebrated its 20th anniversary and remains the largest and most heavily traded exchange-traded fund in the world. But was it the first?
In SPDR ETF's official press release (pdf) commemorating this milestone, there are a few instances where SPY is referred to as the "first ETF." There is even a dedicated microsite labeled "First ETF." A closer look at the press release, however, highlights a key point. Under the subheading, "Key Facts on the SPDR S&P 500 ETF," the first bullet point calls SPY the "first U.S.-listed ETF." So if SPY was the first U.S.-listed ETF, then where was the first ETF in the world listed?
Thanks in large part to a relatively more amenable regulatory environment, the first exchange-traded product in the world was actually listed in Canada. To far less fanfare, the Toronto Stock Exchange celebrated the 20th anniversary of its first ETF listing back in 2010. The TSX created this first-generation ETF to track its TSE 35 Composite Index. The product was dubbed TIPS 35, which stood for "Toronto Index Participation Units." TIPS 35 began trading in March 1990. While SPY is still around today in its original form, TIPS underwent a transformation, becoming iShares S&P/TSX 60 Index (XIU).
Like SPY, XIU is the dominant ETF in its home market. XIU has CAD 12 billion in assets under management, representing more than 20% of total assets in the Canadian ETF market. It is also by far the most heavily traded ETF on the TSX, with an expansive investor base that includes institutional and retail investors alike. While only a shadow of SPY's $123 billion in assets (which amounts to about 9% of total U.S. ETF assets), it is all relative. Considering the size of their addressable markets, the two pioneers have pretty similar footprints in their home markets.
As the story goes, ETFs were born out of the stock market crash on Oct. 19, 1987, which saw the Dow Jones Industrial Average plunge 22% in a single day. ETFs were the solution for institutional investors seeking a substitute for trading index futures. In the recently released paper, SPY: The Idea That Spawned An Industry, State Street Global Advisors (SSgA) provides a detailed history of SPY and suggests that the idea of SPY first occurred as early as 1988. Long story short, it took SPY about three years to clear regulatory hurdles in the U.S., and by that time TIPS 35 was a toddler.
Regardless of who came first, more than two decades later it's clear the ETF has been a disruptive technology that has benefited many investors. And as far as the industry has come in democratizing the investing landscape by providing transparent, low-cost, liquid, tax-efficient, and diversified investment exposure, it's still in the early innings of global adoption and growth.
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