Globally, ETFs have been around for a long time (nearly 30 years) and 2020 was a record year as we could see in the Australian market (net inflows grew +145% to AU$33bn and overall funds under management hit AU$94.4bn - see 2020 Year in Review for Aussie ETFs). But even before this asset class became the market darling that it is, it had to go through its own growing pains as it got started. In this series of articles we will primarily be looking at things through the lens of a podcast called "The ETF Story" from Bloomberg (https://open.spotify.com/show/0j03M8cOnnsI1nNfOTqPya) and overlaying it with other insights. This will hopefully give you a good picture of the journey that ETFs have endured. The Report Whilst the ETF story podcast starts off with the major stock market crash of 1987, the real story for ETFs begins with the epsidoe entitled "The Report". In it we larn how Nate Most and Steve Bloom got the idea for building the first exchanged traded product from an SEC (Securities and Exchange Commission) report calling for a product for trading baskets of stocks. Nate and Steve both worked together at AMEX (American Stock Exchange) in the product development team. They speak about the SEC basically creating the "sketch" or outline of what would help the market improve by having products that could be traded as a basket of goods and physically backed. Most and Bloom created a prototype and took it to a few places including John Bogle at Vanguard (the father of index investing). Bogle initially passed on this pitch and identified 3 flaws in this initial version of the ETF idea and whilst they fixed the flaws, they went back to the drawing board. Commodities played a big part in the history of ETFs too as, at the time, you could get a ticket for storing physical commodities known as commodity warehouse receipts). These receipts could be traded back and forth so replacing the commodity in this example with the S&P 500 gave Most and Bloom the idea for the first ETF. These assets could be traded back and forth without touching the physical commodity. Now that the idea for how it would work was there they needed a name and settled on SPDR which stood for S&P and DR for depository receipts. This was now a new way of trading indexes but they were not alone. Others were also looking at ways to trade index funds but the key for SPDR was the creation redemption mechanism they included in their product filing with the SEC. We're then introduced to Kathleen Moriarty who helped bring to life not just the first ETF but many iconic ones in the process. The Approval In the next episode "The Approval" we learn how it took over 4 years from the time the initial product was submitted to the SEC in 1988 to 1993 when it was finally approved. This episode looked at the all important legal stops needed to get there. The most important part of the ETF process idea that Most and Bloom created was the creation redemption mechanism. Basically, this was bringing elements of the commodities world to the equities market. It was the warhouse receipt concept brought to the basket trading idea. The steps are outlined in this episode too a specific group of stocks are handed to a custodian in exchange for shares those shares could be broken up and sold on an exchange The inverse could also work a group of shares could be bought on exchange these could be then handed to a warehouse custodian to get a basket of stocks back State Street came in as the provider of a trustee services and to act as the virtual warehouse. This sounds straight forward but it was not just about the mathematics of tracking a basket of stocks but there was also legal complexity as well. It was a legal spiderweb to launch the SPDR. Kathleen Moriarty, a lawyer on the team was instrumental in getting things over the line by helping to structure SPDR and submit it to the SEC. Some other facets of this legal structure of the SPDR product were that changes in the individual stocks were reflected each day in the index. This was fine to do but meant they would need to file for the product as a UIT (unit investment trust). There was also a debate over whether this should be a managed fund instead but UITs were cheaper to run and did not need all the features that managed funds have. ETFs also had more restrictive investor protections they had to conform to and this played a part in holding up approval. There was also some hesitancy on the SEC side of bringing new products to market especially when the fallout of the 1987 market crash was still fresh in many minds. SPDR also offered significant tax benefits due to exemptions for in-kind exchanges (no money changing hands when shares created or redeemed). This was an unintended consequence and meant no capital gains. On launch day at the NYSE (New York Stock Exchange) it traded 1 million shares. They hoped it would get $1 billion in assets. Only few traders and brokers knew about this so there was a lot more evangelising person to person needed. Fun fact: When it first launched, SPY was not even known as an ETF as the name ETF would come along a few years later Additional insights If you're after a bit more of a visual history then check out Visual Capitalist and it's take on the 26 year history of ETFs from the first S&P 500 tracking one launched in 1993 up until 2019 where over 2,470+ U.S. listed ETFs. From Key Milestones... to how institutions use ETFs... There are some great and interesting insights on their ETF page and you can check out here: https://www.visualcapitalist.com/the-26-year-history-of-etfs-in-one-infographic/#:~:text=1993%20%E2%80%93%20The%20First%20ETF%20launches,offering%20exposure%20to%20gold%20bullion In the next blog we'll look at "The Competition" and "The Sleeper" episodes and learn more about the history of ETFs.

It's that time of the month again where we review the goings on in the ETF (Exchange Traded Fund market) across Australia. It was a year of some record-setting in the markets not just for equities. From the strongest level of net-inflows to record breaking levels of funds under management (FUM), 2020 was a big year for Aussie ETFs. In this review we'll take a look at total price performance (including dividends and other distributions), net inflows, funds under management and transactions. You can see these highlights below or, better yet, view them in the interactive app here: CLICK HERE 2020 Year in Review Overall Highlights Performance ATEC (+53.9%) was the best performing ETF of 2020 (despite bumpy start) whilst WCM was the best ETF Issuer with +25.5% (albeit with only 1 ETF it provides, WCMQ). Across ETF themes, Technology related equities did the best at +34.9% (led by ATEC, ACDC +53.6% and ASIA +51.0% with FANG following closely behind at +50.2%). Behind Technology as a theme, Healthcare also fared well with returns of +11.7% (led by CURE +35.1% and DRUG +7.1%). Net Inflows Total net inflows in 2020 were AU$33bn. Magellan made up the most with their total global fund listed in November. It finished the year with a total of AU$13.3bn across 3 funds (MGOC, MICH and MHG). Excluding them we saw Vanguard, BetaShares, iShares, VanEck and ETF Securities with the most inflows across 2020 (2nd chart below shows the change in inflows each month). FUM (funds under management) FUM grew to AU$94.4bn in 2020 despite experiencing largest dip in March of this year (AU$6.7bn). Each year has seen continued growth as more and more ETFs are listed and more money flows into the markets. Transactions (number of trades) Number of trades in 2020 far outweighed previous years (2019 and 2018) with March having the most transactions as Covid-19 related lockdowns took place across the country. BBOZ was most traded ETF in 2020. Other Insights The above images are mainly from the initial highlights package put together for this review. Deep diving into the data requires going into the app even further and when you do this you can see things like: Navigate to Net Inflows and see that total Net Inflows for the market were AU$33bn but you get to see how this was split across ETF Issuer, Category, Thematic and Fund. The Category is provided by the ASX and Chi-X in their monthly statistical publications whilst the Thematic view is our take on the various types of ETF plays you can make. If we click on 1 of the bars or use the filters on the left hand side, we can focus on one particular issuer (in this case ETF Securities and we can see they had AU$1.2bn net inflows). Doing this interacts with other parts of the app and you can see how net inflows spread out across 2020 for the issuer and how that compared with similar periods in previous years. When we said the app was interactive we meant it. Horizontal bar charts do little to tell you what happened over time so we also created some pop-up images that showcase more data when the user hovers over a bar (only for the horizontal bar charts). There will be a video explainer showing you what you can do with this report and this data so stay tuned. If you would like to start exploring you can click on "The Apps" menu above or CLICK HERE. The Apps The Year in Review app is available on "The Apps" page where you'll see it below the main ETFtracker app. You can either view these on the page as they are but you also have the option of expanding each app to see it on its own page. To do this click on the expand arrows button on the bottom right of each app. So why 2 apps? Well, we've got 2 here since the ETFtracker app is updated monthly but does not focus on showcasing year vs year comparisons and requires more filtering for users to isolate 2020 metrics on their own. By having the apps as separate pieces we have something that can cater to 2 types of users, those interested in monthly insights and those focusing on what happened in 2020. That's all for now so thanks if you've come this far!

Next week we should see December results come out from the ASX (and a few days later, Chi-X) which means we'll be able to update and showcase our year in review. Whatever security class/asset you look at, there are inevitably year in review articles and analysis done but many aren't made very interactive. In line with the ETFtracker app, we've created an additional interactive app that focuses on how ETFs and their issuers faired in 2020. Below is a preview of what's in store but the figures are still to be finalised so use the following as a guide. Users will get an intro page They'll see some tiled highlights which they can click on to see more details We will have highlight pages showcasing some more in-depth details For those interested in more detailed analysis, they can also view more to see how ETF issuers, categories, thematics and funds performed over the course of 2020. More to come so stay tuned.

Overall Highlights Overall returns for the market were strongest all year(+6.0%). Strongest wasOOO(+31.2%) followed by GGUS (+27.0%) and GEAR (+23.4%). Strongest performer in 2020 to November is ACDC at (+48.3%) and ATEC (+46.9%) and ASIA (+46.5%) Saw strongest monthly inflows for ASX funds with +$15 bn. Total FUM now up to $92 bn. Record level of inflows for November 2020 ($15.1bn)* Strongest ever net inflows seen in the market at $15.1bn but this is mainly due to the inclusion of the Magellan Global Equities Fund. Excluding that group we still saw $2.6bn in net inflows so would have been a record either way. ESG Inflows Grow in 2020 Across inflows – strongest remains multi-equity sector thematic ($8.2bn), followed by Fixed Income ($5.7bn) then Commodities ($1.5bn) and ESG ($1.2bn) – latter doubled since last year and we’re not even completed 2020. Note: ignores Magellan inflows in November. 2019 underperformers - Where are they now? Looking at the lowest 5 performing ETFs of last year (2019), we saw they had an average performance of -28% in terms of cumulative 1-month price returns. We can use the data to see where they were in 2018 and where they are in 2020 to date shows that there was some improvement but average returns up to November so far for this basket of 5 ETFs is still negative (-12.2%). 2019 outperformers - Where are they now? This page looks at the opposite. Looking at the top 5 performing ETFs of 2020, we saw they had an average performance of +46.9% in terms of cumulative 1-month price returns. We can use the data to see where they were in 2018 and where they are in 2020 to date shows that there was some improvement but average returns up to November so far for this basket of 5 ETFs is still positive on average (+21.5%). Stay tuned next month for our wrap up of what performance, inflows, FUM and many other metrics when the December data comes out from ASX and Chi-X next month.

Review of October 2020 performance of Australian ETFs. Highlights included $2.2 billion worth of additional net inflows in the month. Other highlights included the best thematic performance which showed Technology related themes as the top performing group. Video Link: https://www.ausbiz.com.au/media/etfs-catch-another-recordsetting-wave?videoId=5469