A Simple Way to Invest Grows.. (2/13)

New York Times

A Simple Way to Invest Grows More Complicated

By Paul Sullivan (2/1/13)

THIS week was the 20th anniversary of the creation of the first exchange-traded fund, the Standard & Poor’s Depositary Receipts E.T.F., which tracks the performance of the S.& P. 500 index and is bought and sold like a single stock. Even now, what is known as the SPDR S.& P. 500 remains the largest, with nearly $130 billion in assets.

Its selling point is its simplicity: the shares are liquid, the fees are low and the holdings are easy to see. It and the many exchange-traded funds that followed were the foundation for the movement toward low-cost, passive investing that aims to increase returns by eliminating the inconsistent performance of many active investors: the fund will track whatever index it is following.

At a lunch to observe the anniversary, Jim Ross, a senior managing director at State Street Global Advisors and one of the creators of the Standard & Poor’s E.T.F., which trades as SPY, said that the funds would continue over the next 20 years to be vehicles that allow people to invest in increasingly sophisticated ways.

The funds now represent a nearly $2 trillion industry, which promotes itself as easy for the average investor to understand but, as Mr. Ross indicated, is becoming ever more complex.

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