During a recent gathering of senior Bank of New York clients, a panel of ETF industry experts offered an insightful and thought provoking overview of the rapidly evolving ETF marketplace. The following piece is an excerpt of this stimulating panel discussion and concludes with an interview with the Bank of New York's Joe Keenan, who discusses what is driving the growth of ETFs and where they may be headed next.
Excerpts from ETF Panel
The Bank of New York Client Advisory Board Meeting June 20, 2006, The Palace Hotel, New York City Moderated by Jim Wiandt, Editor, Journal of Indexes
Jim Wiandt: I never thought I'd see the day when indexing became something that everyone wanted to talk about. But it seems like that is what has happened, particularly with exchange-traded funds (ETFs). ETFs have really gotten a lot of attention in the national media, and for good reason. Over the past couple of years, we've seen a lot of very interesting things happen in the industry. We've seen ETFs open up asset classes that weren't really available to a broad array of investors on a cost-effective basis; we've seen the launch of strategy-driven, alternatively weighted, alpha-pursuing strategies wrapped inside ETFs; we've even seen ETFs that have other derivatives inside them, which allow you to manage the ETF to whatever benchmark or pseudo-benchmark you want.
It's just a very exciting time. There have certainly never been as many ETFs in registration as there are now, and I don' t think there's ever been as interesting an array of products.
We have a great panel today to discuss these topics. They're amusing, and they tend to know what they' re talking about.
I'll just go down the line. Immediately to my left is Lisa Chen, a portfolio manager at BGI [Barclays Global Investors], which is the 800-pound gorilla in the ETF industry, with over $200 billion in assets and over 100 products.
To her left is Kevin Ireland. Kevin works at ALPS Distributors and is charged with pro m o ting the Nasdaq-100 ETF (QQQ).
To his left is Jonathan Steinberg, who just last week launched 20 new ETFs, which have been the buzz of the industry, and which definitely fit the spectrum of alternative strategies. The Wisdom Tree ETFs are dividend-weighted, and I'm sure "Jono" will talk about the advantages of this, and how market capitalization can sometimes overweight stocks at the top end of the spectrum.
To his left is Cliff Weber, who heads up the ETF business at the American Stock Exchange (Amex). The Amex is really the brain trust and the birthplace of ETFs: The first ETF-the Spider [the Standard and Poor's Depository Receipt 1, ticker "SPY"]-came out of the Amex in 1993. And, of course, the Amex is still very active in product development, including the development of indexes and strategies for new products.
Let's start our Q&A with Cliff Weber. Cliff, could you talk about the ETF industry and how it has evolved since the launch of the Spiders?
Cliff Weber, Senior Vice President of the Amex ETF Marketplace: Sure, Jim, thanks. In 1993, we launched the Spider on the AMEX. It was based on the S&P 500, which at the time was certainly the best-established benchmark in terms of broad market exposure, among both institutional and retail investors.
We structured the fund as a unit investment trust. It was essentially a passive vehicle. There's no investment advisor to manage the assets. The trustee has built into the trust the steps to manage the fund so that it tracks an index. From that day in the end of January, 1993, to today ... well, Jim already talked about the tremendous growth we've seen.