Over the last 20 years, exchange traded funds (ETFs) have grown in popularity and evolved into a core part of portfolios. Daniel Prince, Head of iShares Product Consulting for BlackRock’s U.S. Wealth Advisory Business, explores three key moments that help put ETFs and index investing front and center.
The first key moment was the dot-com bubble of March 2000, a period of peak mania and interest around dot-com stocks. However, the euphoria around growth was tempered when many of these highly-valued stocks went out of business. This put a greater focus on diversification and building portfolios across sectors and geographies. At the same time, the availability of ETF strategies started to increase. In fact, between 2000 and 2014, the amount of money invested in index funds grew by five times.
Similar to the dot-com bubble but on a more global scale, markets were rattled back in 2007 and 2008 when a housing and banking crisis created the Global Financial Crisis. As a result, investors and even regulators demanded more transparency, liquidity and a clearer understanding of the risk of an investment. Investors who were diversified benefited over the next decade in a what was a historical bull market.
The third key moment occurred in August 2019 when money in U.S. index funds surpassed that of active strategies for the first time. The growth that we saw in the prevailing decade corresponded with a shift in investor mindset; indexing had gone mainstream.
The bottom line is that we’ve seen a generational shift in how investors access markets and build portfolios over the past 20 years. ETFs have championed investor progress by democratizing access and giving investors greater control, with a focus on providing investors better value for their money.
1Source: Bloomberg “End of Era: Passive Equity Funds Surpass Active in Epic Shift,” September 11, 2019