Changing investor attitudes may have played a big role in ETF adoption, but it helped that Vanguard and BlackRock, the two largest ETF providers today, started pushing these products — which were almost exclusively tied to passive indexes — in a much bigger way right around the crisis. In 2007, the number of ETFs available jumped to 290, doubling in size and Vanguard was a big part of that. It launched its first suite of bond ETFs that year and a bevy of equity options, too.
In 2009, BlackRock purchased Barclays Global Investors, which owned the iShares brand of ETF. Barclays, which bought Lehman Brothers in 2008, was struggling financially then and needed to raise cash, so it unloaded iShares for $13.5 billion, a "fire sale" price, Bryan said. BlackRock and Vanguard, seeing the opportunity in ETFs, put huge marketing dollars behind these products and wrote investor education articles espousing the virtue of passive investments over active ones.
Soon, people across the U.S., and then the globe, started learning more about these index offerings. "Once Vanguard put its stamp of approval on ETFs, and with BlackRock doing a good job managing the iShares business, investors started taking notice," Bryan said. "The timing worked out because investors were ready for something else."
The ETF industry has continued to evolve, with more traditional asset managers, like Fidelity Investments, getting into passive in a big way. There are now more than 5,000 ETFs on the market, including ones with fees close to zero, ones that are actively managed and ones that focus on niche markets like robotics and obesity, while big players like Vanguard continue to make trading ETFs cheaper — last month the index fund and ETF giants launched commission-free trading on almost all ETFs.
Would the ETF craze have come if it weren't for the recession? Maybe, but it's developed much faster thanks to it, said Bryan. "There's a good possibility that ETFs will become the preferred investment vehicle for people," he said. "Adoption is higher now thanks to the crisis."