The 26-Year History of ETFs, in One Infographic
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The 26-Year History of ETFs, in One Infographic

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The following content is sponsored by iShares by BlackRock.

The History of ETFs

The 26-Year History of ETFs, in One Infographic

In recent decades, there have been many breakthrough technologies that have re-shaped the nature of entire industries.

In finance, perhaps the most notable disruption has come from the rise of the exchange-traded fund (ETF) — an investment vehicle that has quadrupled in size over the last decade alone. But how did the ETF originate, and how has its use evolved through to today?

Today’s infographic comes to us from iShares by BlackRock, and it shows how the ETF has gone from an obscure index tracking tool to becoming a mainstream investing vehicle that encompasses trillions of dollars of assets around the world.

The Origin and History of ETFs

ETFs emerged out of the index investing phenomenon in the late 1980s and early 1990s, and there are two early examples that can be referenced as a starting point:

  • Index Participation Shares – 1989
    This initial attempt to create an ETF was set to track the S&P 500, and garnered significant investor interest. However, it was ruled to work like a futures contract according to a federal court in Chicago, so it never made it to the exchange.
  • Toronto 35 Index Participation Units – 1990
    These were a warehouse, receipt-based instrument that tracked Canada’s major index, the TSE-35. They allowed investors to participate in the performance in the index, without owning individual shares of stocks in the index.

Since these pioneering ETF endeavors, the investment vehicle has caught on in popularity — and it is now clear that ETFs provide a range of important benefits to investors, such as: low costs, liquidity, diversification, tax efficiency, flexibility, accessibility, and transparency.

Key Milestones in U.S. ETF History:

  • 1993 – The First ETF launches in the U.S., tracking the S&P 500
  • 1998 – Sector ETFs debut, tracking individual S&P 500 sectors
  • 2004 – The first U.S.-listed commodity ETF is formed, offering exposure to gold bullion
  • 2008 – Actively-managed ETFs get the green light from the SEC
  • 2010 – Term-maturity ETFs debut, holding bonds that all mature in same year
  • 2015 – First factor-based bond ETFs are launched
  • 2019 – U.S.-listed ETFs hit $4 trillion in AUM, and global bond ETF AUM crosses $1 trillion

How ETFs are Used Today

Today, the U.S. ETF industry has $4.04 trillion of assets under management (AUM), covering a wide spectrum of assets including equities, bonds, alternatives, and money markets.

ETFs are now the go-to index vehicle for 78% of institutional investors, according to a study by Greenwich Associates. Here are the 10 most popular applications for ETFs based on the same data:

ETF ApplicationUsageDescription
Tactical adjustments72%Over- or underweight certain styles, regions, or countries on the basis of short term views.
Core allocation68%Build a long-term strategic holding in a portfolio.
Rebalancing60%Manage portfolio risk in between rebalancing cycles.
Portfolio completion57%Fill in gaps in a strategic asset allocation.
International diversification56%Gain efficient access to foreign markets.
Liquidity management54%Maintain exposure in a liquid investment vehicle to meet cash flow needs.
Transition management44%Facilitate manager transitions with ETFs.
Risk management42%Mitigate undesired portfolio risk and hedge asset allocation decisions.
Interim beta37%Maintain market exposure while refining a long-term view.
Cash equitization37%Put long-term cash positions to work with ETFs to minimize cash drag.

In the 26 years since the introduction of ETFs, they have grown and evolved to cover almost every aspect of the market. The next stage of growth for the ETF will be driven by investors finding even more uses for these versatile tools.

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ESG Data: The Four Motivations Driving Usage

ESG controversies can damage a company’s value, but ESG data may be able to help manage this risk. What are other reasons for using ESG data?

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ESG Data: The Four Motivations Driving Usage

Data is key to the environmental, social, and governance (ESG) revolution. Access to granular ESG data can help boost transparency for market participants. Unfortunately, 63% of U.S. and European asset managers say a lack of quantitative data inhibits their ESG implementation.

Being clear on the potential application of this data is equally important.

  • Investors and banks can use ESG data for risk assessment, to spot opportunities, and to push companies for change.
  • Companies can publish their own ESG data, quantify progress on their ESG goals, and use data to inform decisions.
  • Policymakers can use ESG data to inform regulatory frameworks and measure policy effectiveness.

This graphic from ICE, the second in a three part series on the ESG toolkit, explores four primary motivations of ESG data users.

1. Right Thing

The objective: Having a positive social or environmental impact.

For investors, this can involve screening out companies that conflict with their values and selecting companies that align with their ESG objectives.

As another example, it can involve comparing the social impact of municipal bonds. One way investors can measure social impact is through scores that quantify the potential socioeconomic need of an area, using metrics like poverty and education levels. Here are the social impact scores for three actual municipal bonds issued in Florida.

StateBond IssuerSocial Impact Score
(Higher = larger potential impact)
FloridaIssuer #176.5
FloridaIssuer #266.6
FloridaIssuer #343.2

Issuer #1’s bond is projected to have a community impact that is nearly twice as high/positive as Issuer #3’s bond.

For companies, doing the right thing can include assessing their progress on ESG goals and benchmarking themselves to peers. For example, gender and racial representation is a growing area of focus.

2. Risk

The objective: Managing ESG risks, such as climate and reputational risks.

For investors, this can involve back-testing or analysis around specific risk events before they materialize. Here are the risk profiles of two actual municipal bonds in California. The shown bonds are practically identical in many ways, except their wildlife score.

 Issuer #1Issuer #2
Current Coupon Rate5.0%5.0%
Maturity DateAug 01, 2048August 01, 2048
S&P RatingAAAA
Price to Date (Call Date)Aug 01, 2027Aug 01, 2027
Price122.0122.0
Yield1.0%1.0%
Wildfire Score (Higher = more risk)3.62.7

Managing ESG risk can also involve analyzing a company’s policies and governance for weaknesses. This is important as an ESG controversy can have long-lasting effects on the valuation of a company.

In one study, companies with ESG controversies dropped more than 10% in value relative to the S&P 500. They hadn’t fully recovered a year after the incident.

3. Revenue

The objective: Targeting outperformance through ESG analysis.

Selecting companies with strong ESG data can align with long-term growth trends and may help boost performance. For heavy emitting industries, research indicates that European companies with lower emissions trade at much higher valuations. The chart below shows companies’ price-to-book ratio relative to the Stoxx 600* sector median.

 UtilitiesEnergyMaterials
Above Median Emission Intensity (Bad)1.91.12.0
Below Median Emissions Intensity (Good)2.71.92.1

*The Stoxx 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

Energy companies with low emissions trade at a valuation nearly two times higher than energy companies with high emissions.

4. Regulation

The objective: Understanding and complying with relevant ESG regulation.

The International Sustainability Standards Board has announced a global reporting proposal aligned with the Task Force on Climate-related Financial Disclosures (TCFD). In addition, a growing number of jurisdictions will require organizational reporting that aligns with the TCFD.

  • Brazil
  • European Union
  • Hong Kong
  • Japan
  • New Zealand
  • Singapore
  • Switzerland
  • UK

Not only that, a European Union regulation known as Sustainable Finance Disclosure Regulation (SFDR) came into effect in 2021. It seeks greater transparency in disclosures from firms marketing investment products. Even firms located outside the EU could be impacted if they serve EU customers. In total, the market cap of these non-EU companies exposed to SFDR amounts to $3.2 trillion.

Matching ESG Data with Motivation

There will be growing demand for transparent data as ESG investing flourishes. To remain competitive, investors, policymakers, and companies need access to ESG data that meets their unique objectives.

In Part 3 of the ESG Toolkit series sponsored by ICE, we’ll look at key sustainability index types.

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The Hierarchy of Zero Waste

In a world that generates 2 billion tonnes of waste every year, waste management has become a global concern. Here are some strategies to help guide zero waste policies.

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The Hierarchy of Zero Waste

Many cities have set ambitious zero waste targets in the upcoming decades.

The idea is to have communities where waste generation is avoided, and products are shared, reused, or refurbished.

This graphic, sponsored by Northstar Clean Technologies, shows the main strategies and hierarchy to guide zero waste policies.

What is Zero Waste?

In a world that generates approximately 2 billion tons of waste every year, waste management has become a global concern. Thus, countries and cities are increasing efforts to reduce or even eliminate waste when possible.

The Zero Waste International Alliance defines zero waste as “the conservation of all resources  by means of responsible production, consumption, reuse, and recovery of products, packaging, and materials without burning and with no discharges to land, water, or air that threaten the environment or human health.”

Becoming a zero waste community, however, is a complex task.

Currently, Sweden recycles 99% of locally-produced waste and is considered the best country in the world when it comes to recycling and reusing waste. However, such results only came after almost 40 years of recycling and reuse policies.

In line with this, here are seven commonly accepted steps you can use to achieve zero waste:

1. Rethink, Redesign Products

The global population consumes 110 billion tons of materials each year, but only 8.6% is reused or recycled. In a zero waste society, single-use products are avoided and products are designed with sustainable practices and materials.

2. Reduce

Consumption must be planned carefully to reduce the unnecessary use of materials. Consumers must choose products that maximize the usable lifespan and opportunities for continuous reuse. Companies must minimize the quantity and toxicity of materials used.

3. Reuse

The value of products is maintained by reusing, repairing, or refurbishing for alternative uses.

4. Recycle

Products are diverted from waste streams and recirculated into use. Resilient local markets are developed, allowing the highest and best use of materials.

5. Material Recovery

Component materials like cement, metals, or asphalt are recovered from mixed waste and collected for other applications.

In the U.S. alone, around 12 million tons of asphalt shingle tear-off waste and installation scrap are generated from roof installation each year. Currently, more than 90% of this is discarded in landfills. This material can be repurposed to create new products like liquid asphalt, fiber, and aggregate.

6. Residuals Management

Waste is biologically stabilized and sent to responsibly managed landfills.

7. Unacceptable

The production of materials that are not recoverable and can negatively impact the environment must be avoided.

Reducing our Climate Impact

Reducing, recycling, and recovering materials can be a key part of a climate change strategy to reduce our greenhouse gas emissions.

According to the U.S. Environmental Protection Agency, about 42% of all greenhouse gas emissions are caused by the production and use of goods, including food, products, and packaging.

Even though 100% zero waste may sound difficult to achieve in the near future, a zero waste approach is essential to reduce our impact on the environment.

Northstar Clean Technologies aims to become the leading recovery and reprocessing company for asphalt shingles in North America.

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