Profit from the Last Decade’s ETF Revolution

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Posted: Jan 26, 2017 7:02 PM

When I first entered the investment business to work with my father, Dick Fabian, nearly four decades ago, roughly 95% of mutual funds were high-fee and charged a “load.”

The goal then – and maybe the attraction – of my family-run newsletter, Successful ETF Investing, was to serve as an “investor guidebook” to navigate the then-relatively-new landscape of low-fee, “no-load” mutual funds. Throughout the 1980s and 1990s, my father and I saw the tremendous growth of no-load mutual funds.

By the turn of the century, no-load funds had become the dominant vehicles for individual investors seeking broad, as well as targeted, sector exposure. Yet, in the past decade and a half, exchange-traded funds, or ETFs, have taken over the mantle as the dominant investment vehicles for individual investors.

Why is this the case?

Well, the reason is quite simple. ETFs are the most economical, most transparent, easiest and, in my view, best investment vehicles for investors who want exposure to nearly every facet of the equity markets, including broad-based domestic, international and sector-specific equities.

In recent years, the growth of smart-beta ETFs, leveraged ETFs, inverse ETFs and a variety of fixed-income and commodity ETFs has really made these funds the go-to vehicles for just about every investing style and objective.

In the chart below, you will find the 10 ETFs with the highest assets under management currently in operation today. As you can see, these ETFs are not off-the-radar funds by any means. Indeed, the #10-ranked ETF on this list has over $38 billion in assets under management.

10-etfs-assets
The top 10 ETFs by assets, as they appear at ETFdb.com.

Let’s look at some of the biggest ETFs in a bit more detail.

  • SPDR S&P 500 ETF (SPY). With more than $200 billion in assets managed, the SPDR S&P 500 ETF (SPY) is more than twice the size of its nearest competitor, the iShares Core S&P 500 ETF (IVV). In early 2009, SPY shook off more than a decade of mediocre performance and has appreciated more than 180% since then.
  • iShares Core S&P 500 ETF (IVV) is a newer and smaller version of the SPDR S&P 500 ETF (SPY), capable of using alternative investment strategies that its “big brother” SPY cannot. IVV pays out a 2% annual yield and is up 80% during the last five years.
  • Vanguard Total Stock Market ETF (VTI). Whereas the two ETFs listed above were focused on the returns of the S&P 500, VTI tracks the performance of the overall U.S. stock market, including large-, medium-, small- and micro-cap stocks. Despite a double-digit slump in 2015-2016, VTI still has seen its share price rise 80% since January 2012.

To me, the ETF revolution, particularly over the past decade, has been one of the best developments to ever come out of Wall Street — so embrace it!

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