ETF Lessons for a New Era

Warren Buffett once famously said: “Someone is sitting in the shade today because someone planted a tree a long time ago.”

Milestones in life and in investing have a way of getting us to stop and think about decisions made that brought us here. As I join the research team at TMX VettaFi this week — thank you for the industrywide warm welcome, by the way! — Buffett’s notion got me thinking about how time and network impact outcomes.

Take ETFs, for example.

There are today more than 300 ETF firms in the U.S. market offering more than 3,400 funds that command $8.7 trillion in combined assets. It’s a big tree offering a lot of shade to a lot of investors who, perhaps, 30-some years ago, weren’t accessing markets the way they do today.

ETFs were born of a problem-solving mindset that sought to facilitate intraday trading in an investment vehicle — something mutual funds couldn’t do. The original design of the creation/redemption mechanism that allowed for that trading led to brilliant tax efficiency, to boot.

The first U.S.-listed ETF, the SPDR S&P 500 ETF Trust (SPY), was the seed to a wave of product development that has delivered transparent, lower cost, liquid, tradable, and tax-efficient investment vehicles across asset classes and markets. (You can tour the entire universe of ETFs in our screener here.)