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The History of Exchange-Traded Funds (ETFs)

An Exchange Traded Funds: A 30-Year Milestones .“The ETFs have gone from an interesting thing in the 1990s to one of the top financial innovations in the last 25 years” shared Jim Ross – head of SPDR business at State Street Global Advisors. Discover the milestone of ETF growth across regions, shedding light on the History of ETF and influential events in our insightful infographic.

Table of contents:

1. What is an ETF Exchange Traded Fund?

2. The History and Growth of ETF

2.1 The Idea of Index Investing 

2.2 Expansion and Milestones across European Countries

2.3 ETFs Growth in Asia-Pacific Region

3. ETF Development in Vietnam

The history and growth of ETFThe history and growth of ETF

1. What is an Exchange Traded Fund?

  • Exchange-traded funds (ETFs) are investment funds that track a specific benchmark index or industry.
  • ETFs can be bought and sold throughout the trading day at market prices, offering liquidity and flexibility.
  • Exchange-traded funds have gained immense popularity as an investment tool worldwide since their inception in the 1990s in Canada and the US, Funds are sought-after by investors due to their low fees, easy accessibility, and ability to diversify a portfolio.

2. The History and Growth of ETF

2.1. The idea of Index Investing

  • The roots of Exchange-Traded Funds (ETFs) trace back to the early 1900s with Louis Bachelier’s “Th´eorie de la Sp´eculation” (Speculation Theory). He pioneered the introduction of modelling statistical properties in stock price fluctuations which played a crucial role in shaping the foundation for ETFs. 
  • During the period 1950-1952, an economist- Harry Markowitz conducted the theoretical “Modern Portfolio Theory” (MPT) research. This theory aspired to diversify portfolios, managing risk and investment returns through the strategic allocation of different asset classes.
  • On October 19, 1987, the U.S. stock market experienced a significant “Black Monday” event marked by a decline of over 508 points in the Dow Jones index. This incident not only affected the U.S. market but also had a global impact that posed challenges and raised questions about risk management and minimizing stock fluctuations.
  • From 1970 to 1989, U.S. fund managers initiated efforts to develop funds similar to ETFs, known as Index Participation Shares (IPS) and Cash Index Participations (CIPs) to replicate the stock index performance. Subsequently, due to legal and management issues, trading for these funds was suspended.
  • In April 1990, the first ETF listed in Canada named Toronto Index Participation Shares to replicate the Toronto 35 Index. 
  • On January 29, 1993, five years after the “Black Monday” event, the first ETF SPDRs were introduced on the American Stock Exchange (AMEX), replicating the S&P 500 Index.

2.2 Growth and Milestones across Europe Countries.

The journey of ETFs in European markets began in the early 2000s, marked by significant milestones: 

  •  From 2000 to 2003
  • On April 11 2000, Europe launched its first ETFs. Among them were the Euro Stoxx 50 LDRS and Stoxx 50 LDRS2, which started trading on the Deutsche Boerse in Germany.
  • In April 2000, the iShares FTSE 100 ETF was listed on the London Stock Exchange. Concurrently in Paris, the first ETF the Lyxor ETF CAC 40 introduced, primarily tracking the performance of the CAC 40 index.
  • On November 29, 2000, Sweden introduced its first ETF XACT OMXS30 was listed on the Stockholm Stock Exchange.
  • In February 2002 Finland’s introduction of the IHEX 35 ETF officially traded on the Helsinki Stock Exchange.
  • Italy’s foray into ETFs in 2002-2003 replicating the S&P/MIB index, and listed it on the Borsa Italiana Stock Exchange. All underscored the diverse applications of these financial instruments in different European markets.
  • In 2004-2005: 
  • In December 2004, Iceland welcomed its first ETF – Landsbref Equity ETF (LEQ), officially traded on the Nasdaq OMX Iceland (2*).
  • On March 1, 2005, Norway saw the emergence of its first ETF – DnBNOR OBX.
  • On April 23, 2005, Ireland listed and traded its first ETF – The Iseq 20 ETF on the Irish stock exchange (2*).
  • In 2005, Austria developed and traded its first ETF named Raiffeisen-EmergingMarkets-Fund.

3. ETF Growth in the Asia-Pacific Region

Demand for ETF in Asia -Pacific countries (1)

From 1995- 2002 (4*) 

  • Between 1995 and 2002, countries Japan, Hong Kong, Singapore, India, South Korea, Australia, and Taiwan witnessed the introduction of their inaugural ETFs, each tailored to replicate specific benchmark indices.
  • In May 1995, Japan introduced the Nikkei 300 Index Fund, as the first ETF listed on the Tokyo Stock Exchange, marking the first ETF traded in Asia. 
  • In October 1999, Hong Kong introduced the ETF Tracker Fund of Hong Kong (TraHK), mirroring the Hang Seng index.
  • On April 17, 2002, Singapore established its first domestic ETF, the Straits Times Index (STI) ETF, traded on the Singapore Exchange (SGX). This development contributed to the growing diversity of ETF options available to investors in the Asia-Pacific region.
  • January 8, 2002, in India, the Nifty BeES ETF, tracks the Nifty 50 index, listed on the National Stock Exchange (NSE).
  • In October 2002, South Korea introduced its first three ETFs: Kodex 200, Kospi 200, and Kospi 50 on the Korean Exchange.
  • On August 27, 2001, Australia listed its first two ETFs: SPDR S&P/ASX 50 and SPDR S&P/ASX 200 on the ASX.
  • On April 30, 2002, Taiwan introduced its first domestic ETF, replicating the TSEC Taiwan 50 Index and listed on the Taiwan Stock Exchange (TSEC).

In 2003- 2014(5*) 

  • June 30, 2003, Taiwan continued with the introduction of two domestic ETFs: TSEC Taiwan Mid-Cap 100 (ETF 51) and TSEC Taiwan Technology (ETF 52). These additions reflected Taiwan’s commitment to providing a diverse range of ETF options to investors
  • November 29, 2004, China entered the ETF landscape with the (IPO) of the ChinaAMC SSE STAR 50 ETF. it became the first ETF’s China and was officially listed on the Shanghai Stock Exchange by early 2005.
  • July 18, 2005, Malaysia established its first ETF, ETF ABFMY1, mimicking the Bond Markit iBoxx ABF index, listed on Bursa Malaysia.
  • 2006-2007, Thailand listed its first two ETFs: ABF Thailand Bond Index Fund and Thaidex SET50 Exchange Traded Fund.
  • The Indonesian’s first ETF – the Premier ETF LQ-45 (R-LQ45X) officially traded offering investors an efficient tool to participate in the performance of the LQ-45 index in 2007,
  • In 2013, launched the First Metro Philippine Equity ETF in the Philippines, contributing to the expanding landscape in Southeast Asia.

4. ETF Development in Vietnam (2014-2022)

In 2014

  • July 4, 2014, Vietnam entered the ETF space by welcoming the first domestic ETF named VFMVN30 tracking the VN30 index and listed on (HOSE).
  • 10/12/2014: On December 10, 2014, introducing the SSIAM VNX50 ETF, replicating the VNX50 index’s top 50 stocks.

In 2020

  • 24/02/2020: On February 24, 2020, launched the SSIAM VNFIN LEAD ETF, tracking the VNAllShare Financials index’s top 10 financial companies in Vietnam,
  • On May 12, 2020, the DCVFMVN DIAMOND ETF, replicated the VN Diamond index’s stocks in Vietnam. 
  • On June 16, 2020, welcome VinaCapital VN100 ETF replicating the VN10 index in the market.
  • July 22, 2020, listing the SSIAM VN30 ETF tracking VN30 stocks on HOSE
  • November 15, 2020, listing MAFM VN30 ETF, tracking VN30 index. 

2021- 2022

  • On January 7, 2022, the KIM Growth VN30 ETF is listed on HOSE, tracking VN30 stocks. 
  • September 29, 2022, launching the DCVFMVN MIDCAP ETF, the third ETF by DCVFM,
  • On October 26, 2022, the KIM FUEKIVFS ETF launched,  tracking the VNFINSELECT index.

As of December 2022, the global ETF market boasts over 8,754 listed and traded products (Statista, 2022). In Vietnam, over 13 actively traded ETFs command a total portfolio size of approximately USD 3.3 billion, reflecting substantial growth and acceptance of ETFs in the Vietnamese financial ecosystem.

This blog provides a valuable resource about the History and milestones of ETF in the world. Don’t miss out on the comprehensive exploration of the dynamics of ETFs.

Sources: 

1*.Journal of Corporate Finance Research, Vol. 38, No. 2, pp. 89-108, Hypotheses of MHA Davis p.1

2*.Morningstar; Euro Clear; Borsaitaliana.it ; (Irishtimes ;source p.70);Etfexpress

3*.HAL SHS; Euronext

4*. Euroclear; Bloomberg Intelligence, SGX, Sage JournalsNomura Institute of Capital Markets Research

5*. Goldman Sachs, Global Journal of Business Research, Journal Book(p.365-366), TWSE,(Panyapiwat Institute of Management); MPRA Paper; Jakarta daily.id, Statista 2023. 

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