A 𝙎𝙬𝙞𝙛𝙩 history of ETF eras

Thanks to my daughter’s impeccable planning plus a little bit of luck, we were fortunate enough to see Taylor Swift’s incredible concert at Levi’s Stadium in Santa Clara, California. Exuding non-stop energy, Swift performed 45 songs over 3.5 hours to an ecstatic crowd that belted out every word right along with her. There is a reason they renamed the city “Swiftie Clara!” I am a little worried about recency bias but feel comfortable declaring this is the best concert I have ever attended. My daughter is still buzzing.

I was listening (and singing!) song after familiar song across all the “eras” of Swift’s long and successful musical career. And since my time in the ETF industry aligns nearly identically with Swift’s time as a performing artist, I wondered how else the products of our careers may be aligned. As a fan of both ETFs and Taylor Swift, I thought it’d be fun to reimagine her lyrics as reflections over the ever-expanding ETF industry. Here’s how I’d imagine she could have drawn inspiration from our industry based on some of my favorite songs from the concert:

Love Story (2008) – “It’s a love story. Baby, just say ‘Yes’.”

In the early 2000s, ETFs were still a bit of a novelty. Between 2000-2006, ETFs in the United States averaged around $40 billion in inflows each year.¹ That changed in 2007 and 2008 when investor interest exploded, and the average inflows jumped to more than $150 billion.² The ETF “Love Story” had officially begun!

I Knew You Were Trouble (2012) – “ ’Cause I knew you were trouble when you walked in/So shame on me now…”

ETF assets and inflows continued to grow as more and more investors began to appreciate the ETF vehicle. However, there was potential early “trouble” in the US market structure, causing irregular trading during times of heightened market volatility. These worries were sadly justified during the original Flash Crash of 2010, which negatively impacted ETFs along with single stocks.

Shake It Off (2014) – “ ’Cause the players gonna play, play, play, play, play/And the haters gonna hate, hate, hate, hate, hate/ Baby, I’m just gonna shake, shake, shake, shake, shake/I shake it off, I shake it off…”

After the Flash Crash, the ETF wrapper was under attack. Detractors were screaming that the ETF arbitrage concept was not bulletproof and trading efficiency was more inconsistent than expected. There may always be both lovers and haters of the ETF wrapper. From an ETF capital markets perspective, much of the context in my early writings attempted to convince those haters that their concerns were unjustified.

…Ready For It? (2017) – “I know I’m gonna be with you, so I take my time/Are you ready for it?”

Perhaps this title anticipated that others would share my excitement for active ETFs! Active funds have gained in popularity and ETF issuers would have been wise to be “ready for it,” even before the passage of the “ETF Rule” that codified no operational differences between active and index funds. It’s fun to think these lyrics also presciently call for patience—ETF issuers needed to take their time as track records were built and investors became more comfortable getting active exposure within the ETF vehicle. Thus far in 2023, 23% of the almost $300 billion of ETF inflows in the United States have come from active ETFs.³

Cruel Summer (2019) – “It’s cool, that’s what I tell ‘em/No rules in breakable heaven/But ooh, whoa oh/ It’s a cruel summer/With you.”

The ETF industry tends to slow down in summertime. Last year, US ETFs averaged around $50 billion a month of inflows but only $40 billion in June, July, and August.⁴ Thus far in 2023, the industry has averaged $37 billion in inflows a month, but paralleling the success of Swift’s “Eras” tour, June saw $65 billion in inflows while July saw $53 billion. Maybe her tour has made summer a little less cruel for ETFs.

Karma (2022) – “Karma is a god (Ah)/Uh-huh, mm/Karma’s a relaxing thought…”

Are we in charge of our own destinies? Our Franklin Templeton ETF business has been making strides for seven years. Maybe there is a little bit of karma involved with the recent success of the Franklin ETF business; in the United States, we have now seen over $2.5 billion of net inflows in 2023 and our assets are closing in on $13.5 billion.⁵ While one might think we can relax now, I will continue to champion the merits of ETFs—and Taylor Swift’s music!