SPDR

SPDR ETF’s – A short history of ETF’s

In 1993 State Street Global Advisors (a division of State Street Corporation) created the first ETF that was traded in the US at the American Stock Exchange (AMEX, now owned by NYSE). This ETF was called a SPDR  or “spider” and it tracked the S&P 500. It was not the first ETF created however.

Already in 1989 there were attempts at creating something similar like an ETF, but they were banned by then. The Toronto Stock Exchange made another attempt in 1990 that would now be called an ETF.

But it must be said, it was not until State Street developed the first SPDR ETF that this market really was on the way of becoming one of the most popular playing fields for private and professional investors.

SPDR and their relation with Standard & Poor’s

Initially SPDR was closely tied with Standard & Poor’s 500 index. The name SPDR originally stands for Standard & Poor’s Depositary Receipt. As State Street saw the huge success they had with the SPDR they began creating other ETF’s tracking other indices such as the Dow Jones Industrial Average.

The relation with Standard & Poor’s was gone now but he name remained the same. Today SPDR is a trademark from State Street Global Advisors. They use the name for every ETF they provide so in fact it turned out into a brand name.

The core values of SPDR ETF’s

As SPDR may well be called the creator of the popular ETF it is important to notice that the core values of an ETF have much to do with the way State Street set the rules for ETF development. From the beginning SPDR saw that a few major traits would be important in order to make this new financial product successful. We list a few of these traits here that SPDR focused on:

Transparency
SPDR always made sure that a newly created ETF would have 100% transparency. Especially with new financial products it is transparency that will make it a success. Major issues as what underlying assets were tracked, how prices were set, how tracking was managed were of the highest importance in the beginning of the ETF market (and it still is of course!).

Keeping costs down
SPDR set out to make their ETF’s low in expenses and managing costs. They still offer very low fees for managing the ETF’s.

Diversify investments through 1 single ETF
Investing in 1 ETF and at the same time spreading risks, that is essentially the backbone of en ETF. State Street made sure they developed their SPDR ETF’s along that line. Of course it helped a lot that the first SPDR ETF’s were tracking large indices like the S&P 500 and DJIA.

Making it easy to trade SPDR ETF’s
Distribution and availability of a new financial product is a major requirement in reaching the early adopters and then scaling up to larger audiences. SPDR ETF’s were first only available in the US but there they made sure that many brokers could provide them.

In the years that followed SPDR ETF’s became available for customers from all over the world. Another thing that mattered was the availability of the SPDR ETF’s in many currencies. They made sure that today many ETF’s are traded in the major global currencies.

Traded like stocks

This really was the main reason that ETF’s became as popular as they did. SPDR made sure that their ETF’s could be traded during exchange hours just like stocks. Entering and exiting an ETF whenever the customer wanted was the reason both professional and individual investors took to ETF’s instead of mutual funds.

Of course the growth of online brokers catered to the use of ETF’s as individuals could both trade swiftly at low costs and spread their investments through 1 single ETF.

Many thanks to SPDR

Of course if State Street did not step into the ETF market like it did, another would have done it. But that is easy to say afterwards. What matters most is that SPDR did what they did and in a way that made it possible for investors to gain upon it. They filled the gap and created a market by doing that. I think we really have to be thankful fo SPDR in doing that.

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