Exchange-traded funds (ETFs) have evolved dramatically since it first was introduced into the market in 1989.
Since then, they have quickly become mainstream investment tools. US-based ETFs were valued at $1.6-trillion in 2013 while European ETFs and exchange-traded products (ETPs) reached $500bn in 2015. After all major index providers launched their own ETFs, the number of alternative ETFs that have been introduced into the market has ballooned.
In 2002, the first fixed-income ETF was launched and the first alternatively-weighted ETF was launched just a year later. This alternatively-weighted ETF, a precursor for smart beta indices, was equally weighted rather than following traditional size-based weighting methods.
Among the swathe of new product launches was the inverse ETF, which was introduced in 2006. While some have argued that leveraged and inverse ETFs bring more disturbance to the market, inverse ETFs are commonly used to hedge portfolios against falling prices.
ETFs and alternatively weighted ETFs increasingly gain popularity and will surely be the topic of many future discussions and research.