All About ETFs

The ETF market has gotten massive. What is an ETF? It stands for Exchange-Traded Fund, which was invented in Canada in 1990 and introduced in the U.S. in 1993 with the launch by State Street Global Advisors of the SPDR® S&P 500® ETF (SPY), which represented the overall market as measured by the Standard & Poors 500, a popular large-cap index. Now, there are so many ETFs, and they have expanded their scope beyond broad markets to very narrow ones. They have moved beyond just stocks as assets, as there are commodity ETFs and bond ETFs too. Invesco, a major player in the ETF space, shared a chart on their website that shows the growth in ETF assets in the U.S. to almost $15 trillion spread out over 4800 funds in 2024:

ETF Advantages

ETFs can be passively managed or actively managed. Passives track an index, while actives have portfolio managers that do things to beat the index. I used to be an active manager in fixed-income and then in equities, and I have long appreciated the brilliance of John Bogle, founder of Vanguard, who built his firm on offering index mutual funds. Vanguard, as I discuss in the next section, is a big ETF player.

I have nothing against mutual funds, active or passive, but they trade just once a day. This can be good, in that it eliminates over-trading potentially, but it can also be a challenge that investors need to lock in a trade at an unknown price. So, ETFs have a big advantage in their ability to trade like a stock.

One of the challenges for taxable investors in mutual funds is that there can be taxable distributions related to capital gains the funds take. The laws of the U.S. allow ETFs to shield their investors. So, they are more tax-efficient than funds.

Compared to mutual funds, ETFs are growing much faster from what I have seen. I think a big part of it is that they appeal to both individual investors and to investment professionals.

Big ETF Players

As I mentioned above, Vanguard is very large in the ETF business, and I am glad to see the company make the transition from passively-managed mutual fund pioneer. Their SPY rival, Vanguard S&P 500 ETF (VOO), has a fee of just 0.03% and has $823 billion in assets under management. It is comanaged with Vanguard 500 Index Fund Admiral Shares (VFIAX), which has $635 billion.

According to ETF Database, which is a good tool, Vanguard ranks 4th among all ETF issuers ranked by revenue. Considering how little they charge on many of their funds, this is impressive. Here is the table for the Top 10:

My ETF Articles at Seeking Alpha

I have always liked the concept of ETFs and have paid close attention to this part of the market for investing for a long time. At Seeking Alpha, where I host 420 Investor, a subscription service for cannabis stocks that I moved there a few years ago, I had been writing exclusively about cannabis stocks despite a long history of previously writing articles on regular stocks beginning in 2007. I have been sharing several ETF articles recently. Why? Well, for a lot of reasons, but one of the main ones is that investors and investor advisors have loaded their portfolios with ETFs and may be at risk from the way the market has become highly concentrated by the Magnificent Seven.

Here is a list of the ones I have done since mid-October in reverse-chronological order.

My articles are linked on my profile at Seeking Alpha if you want to read any of them. I am happy to discuss any of them here. Here is a summary of my current ratings:

Conclusion

ETFs are quite popular and have some attractive features. I have shared a discussion of the industry and have also shared my views on some ETFs. Not all ETFs are good, and there are some challenges for the industry, like the leveraged ETFs. Again, I look forward to answering any questions my readers of this ETF article have.