ETC’s Jay Baker reflects on the 30th birthday of SPY, how it correlates to the ETF space today, and what he envisions for the future of ETFs.
January 22 marked the 30th anniversary of the SPDR S&P 500 ETF Trust, more commonly known as SPY. As Whitney Houston reached the top of the charts for her hit “I’ll Always Love You,” ETC’s Jay Baker was involved with developing a marketing plan for a novel trading instrument being developed by AMEX. Soon to be the very first ETF listed in the United States – SPY – the granddaddy ETF that started it all is the largest, most-traded ETF in the world.
We spoke with Jay about the launch and growth of SPY, gathered his thoughts on the evolution of the ETF space since the early ‘90s, as well as what he envisions for the future of the ETF Universe.
Meet Jay Baker
Jay joined Exchange Traded Concepts (ETC) in 2011 as the Director of Capital Markets. His deep experience in the ETF space includes his work at AMEX in the ETF & Options Department, and over a decade at Goldman Sachs as the VP of ETF Business Development in their Electronic ETF Trading Group.
Jay played a lead role in the successful launch of the Yorkville products – one of the first ETFs launched on ETC’s platform in 2012. Since then, Jay’s contributions and experience have been instrumental in ETC launching 81+ ETFs over the last 10 years.
What were some of the challenges of launching SPY?
SPY was the first of its kind, so regulatory review was extensive.
Additionally, institutional investors, the initial target audience, were opposed to a product that essentially indexed the S&P 500 at 9 basis points when they were selling products that charged 80-90 basis points.
What do you think contributed to SPY’s success?
The hard work of the development, legal, and marketing teams was key to the success of the fund. The product development and legal teams created a structure that offers many benefits that are not available in other wrappers. The marketing team worked to grow institutional awareness of the innovative investment wrapper and helped raise the fund’s first $200 million in capital.
The ETF wrapper also solved a practical problem for smaller entities that were losing listings and trading volume to its larger rivals – the ability to make trades quickly. The ETF would facilitate the trading of a basket of stocks representing all 500 stocks in the S&P 500 in one stroke. SPY’s success speaks for itself as one of the most heavily traded securities in the world, with an average 30-day volume of over 78 million shares[1].
What is your favorite part of SPY?
In the beginning, the SPY fund was set up as a unit investment trust (UIT), which ultimately has an end date. To ensure a long life for the trust, individuals involved in its creation used their children born around the launch of SPY as a benchmark for the life of the SPY trust, later known as SPY babies. Getting to include his daughter Julia as one of the 11 SPY babies and her being part of ETFs will always be something special between them.
SPY as we know it will cease to exist on Jan. 22, 2118, statistically equating to 110 years from SPY’s 1993 inception or 20 years “after the death of the last survivor of the SPY babies,” whichever comes first.
What do you find significant about the ETF space over the last 30 years?
The disruptive growth of the overall ETF industry has been amazing to experience, ETFs have come a long way. In 30 years, the market has grown from no ETFs to over 9,500 ETFs globally with assets of $9 trillion. Just in the U.S. alone, there are over 2,900 ETFs with assets of $6.4 trillion[2].
ETFs have expanded from their roots in equity-based funds to include just about every other asset class, including investment strategies that may not have been available to retail investors, such as leveraged or inverse ETFs (2X or -2X S&P 500, for example).
Most significantly, the SEC’s adoption of “The ETF Rule” in 2019 has made launching an ETF significantly easier, especially if you’re using ETC’s platform. Regulatory concerns aside, Rule (6c-11) allows ETFs to be launched without requiring exemptive relief if funds meet certain conditions, which ETC can do in as little as 100 days with our ETF in a Box platform.
What do you see for the ETF industry over the next 30 years?
Despite last year’s bear market, we still saw ETFs accelerate in growth and popularity. ETFs reached their highest trading volumes on record and more than 400 new ETFs were launched in 2022[3]. If this is a hint at the future of the industry, there are no signs of slowing down.
We have also seen a trend in the amount of separately managed accounts (SMAs) and mutual funds converting to ETFs since the ETF wrapper offers a potentially more tax-efficient structure. ETF conversions are gaining traction and ETC has already helped several large RIAs move their SMA assets into ETFs.
ETF assets currently make up around 25% of mutual fund assets. We anticipate this percentage will likely grow substantially over the next decade.
When we look back in 2053 at the ETF universe, we will see ETFs getting more creative and emerging with new and interesting themes, ideas, and structures. There may also be noteworthy growth in fixed-income ETFs – the market will decide the ones with true potential.
[1] Bloomberg. As of 2/3/23.
[2] ETFGI. (2022) ETF/ETP Growth Charts, ETFGI.com, Retrieved 2/3/23
[3] Hajric, V. (2022). Hundreds of New ETFs Debuted This Year Even as Markets Suffered. Bloomberg.
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