The Visual Investor: How to Spot Market Trends, Second Edition

CHAPTER 12

Exchange-Traded Funds

Although exchange-traded funds (ETFs) first appeared in 1993, they didn’t start attracting serious attention until after 2000. By the second quarter of 2008, funds invested in ETFs had reached $612 billion, ond quarter of 2008, funds invested in ETFs had reached $612 billion, more than a five-fold increase from eight years earlier. The growth of ETFs represents a huge step in the evolution of the financial markets and has made the task of the visual investor a good deal easier. When I first wrote about intermarket relationships nearly 20 years ago, it wasn’t that easy to implement all of the strategies involved. That’s because intermarket work encompassed bonds, commodities, currencies, foreign markets, and U.S. stocks. It also included market sectors and industry groups. Outside of the futures markets, it wasn’t easy to trade commodities or currencies. Sector trading wasn’t that easy either. During the 1990s, the broadening of the mutual fund industry helped a lot. Since 2000, however, the availability of exchange-traded funds has been a giant leap forward.

In the spring of 2008, 683 exchange-trade funds were being offered by 23 fund managers. The three firms that dominate the ETF market are Barclays Global Investors, Vanguard, and State Street. Those three firms account for 85 percent of the ETF market. Of those three, Barclays is the biggest ETF player with 52 percent of the market. Some smaller firms that offer innovative ETF products include ...