Q+A: The bet that transformed investing in Australia
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What was the initial perception of ETFs in Australia 25 years ago?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. 25 years ago, Australia's first exchange-traded fund quietly listed on the ASX. At the time, very few people had heard of an ETF, and there was no guarantee Australian investors would embrace the idea. Today, ETFs have become one of the fastest growing parts of Australia's investment landscape worth more than $330 billion. Now remember, this is general information only and you should always seek advice tailored to your circumstances before making investment decisions.
What challenges were faced when launching Australia's first ETF?
Jonathan Sheed is Head of Investments at State Street Investment Management and one of the people who launched Australia's first ETF. Jonathan, welcome to Fear and Greed Q&A. Why, thank you very much, Sean. So take us back 25 years. What was it like when you, you know, I'm just interested in the process of coming up with an ETF.
Yeah, look, it was a very different world, Sean. To be fair, the Australian ETF wasn't the first one. Of course, we had listed SPY, the first US listed ETF, probably, I don't know, seven or eight years prior. But it was a completely different world. I mean, you know, Taylor Swift was, I don't know, 10 or 11 years old. People didn't Google things.
How did the early investors utilize ETFs?
They used Yahoo and AltaVista and managed funds back then just weren't suitable for the exchange. And so in order to develop it, it wasn't like a fresh paint job on an existing product. It was more like a kind of a full scale gut the building renovation. You know, we had to rewrite the constitution completely. I'm sure the riders of the castle would have been proud. The tax side of it, funds were taxed completely differently back in the day. We had to kind of rethink the whole process to tax. The ASICs listing rules were completely different.
What was the first ETF listed on the ASX?
You know, the Aqua platform exists now for those kind of products, but back then... We had disclosure rules that were really geared for, I don't know, CBA and BHP and Telstra and so on that we had to abide by. And then there was regulatory stuff we had to do as well. So it was really a rebuild from the ground up. And how did you do it then?
Because you've just mentioned, you know, you've got all sorts of third parties. So you've got government and regulators, you've got investors, obviously, you've actually got the kind of the companies themselves who hold the shares. Was it just sort of a process that you went through over a few years to get there or how did it work?
There was a lot of iterations. There was a lot of iterations. And I think a lot of the early buyers were actually brokers and large financial institutions.
What educational efforts were necessary for ETF acceptance?
So, you know, in the early days, they were using it to hedge buyers positions against the futures or against the cash equities market. They were using it for installment warrants and those kind of structured products. And so we weren't dealing initially with a very sophisticated group of investors, but there was a lot of to and fro between the regulator, our tax team, legal advisors, and the ASX before we finally got them up and running.
What was the first ETF on the exchange?
The first ETF was STW, which tracked the ASX 200. And we did SFY, which tracked the 50 litres.
What were the turning points in the growth of ETFs?
And then about six months later, we did the listed property one, which was SLF at the time. So those were the first ones out of the gate. But We were still doing basic education for the market for those ETFs, you know, passive investing and liquidity and spreads and the primary versus secondary market, all that kind of education. We were doing that for five, six, seven years in order for investors to get comfortable.
So what was the turning point? I mean, today ETFs are just part of the landscape. They're mainstream. I talk to my kids. They talk to me about ETFs, which just amazes me.
How have ETFs surpassed initial expectations?
What was the turning point for ETFs, do you think?
I think there were a few. And to be fair, as ETFs evolved, they did so as the broader ecosystem for financial products evolved. I'm glad to hear that your kids know what an ETF is.
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Chapters
8 chapters
1
What was the initial perception of ETFs in Australia 25 years ago?
0:06–0:42
2
What challenges were faced when launching Australia's first ETF?
0:42–1:26
3
How did the early investors utilize ETFs?
1:26–2:02
4
What was the first ETF listed on the ASX?
2:02–2:54
5
What educational efforts were necessary for ETF acceptance?
2:54–3:33
6
What were the turning points in the growth of ETFs?
3:33–4:13
7
How have ETFs surpassed initial expectations?
4:13–4:57
8
What does the future hold for ETFs in the investment landscape?
4:57–11:16