From Wall Street to Main Street: How ETFs changed the world
This report is sponsored by State Street Investment Management. It was independently researched and written.
It's not often a financial product can truly claim to have revolutionised our lives. But that's certainly the case with exchange traded funds.
Ten years ago, just 1.3% of Australians invested in exchange traded funds (ETFs), according to the ASX.
Fast forward to 2025, and one in five Australians own ETFs. These investors are reaping the rewards of low fees, high diversity and an ever-expanded choice of asset classes to invest in.
But the ETF revolution is about more than numbers.
With their low capital requirements, super-low fees, and built-in diversification, ETFs have made investing easier and more affordable.
Today, one in three young investors (average age 21) own ETFs. Over one in 10 ETF investors are women, and countless others are adding ETFs to their self-managed super fund.
Tim Bradbury, Head of Intermediary, Australia at State Street Investment Management, which introduced ETFs to Australia in August 2001, sums up the impact, saying, "ETFs have brought Wall Street to Main Street."
Giving individual investors the same tools as the big end of town
Bradbury observes, "The incredible thing about ETFs is that they have allowed investors from all walks of life to access many of the same asset allocation tools and portfolio construction methods used by the large institutional investors.
"This has seen investors reap the rewards of choice, diversification and portfolio control - all at very low cost."
Rakesh Shah, principal of Perth-based wealth advisers, Capital Partners, explains the impact of ETFs saying, "Historically, investing for mum and dad investors typically meant buying individual stocks because managed funds were locked away behind premium platforms.
"Then along came ETFs, which are accessible to almost everyone, opening up a whole new market for retail investors. This ability to access new investment products at a time when the general public is getting educated on the power of index funds has improved investment outcomes for millions of Australians."
The upshot is that since the launch of State Street's ground-breaking series of ETFs in 2001, Australia's ETF market has surged to be worth $272 billion. Globally, the ETF market is valued at $US13.8 trillion as of December 31, 2024, according to Morningstar Direct.
The 'why' behind the rise of ETFs
Glen Hare, co-founder of Fox & Hare Financial Advice agrees that ETFs have "totally shaken up how everyday people invest".
Part of the appeal, he believes, is that ETFs have "made it super easy and affordable to spread your money across different investments and markets around the world, something that used to be a real pain."
This diversification is central to how ETFs work.
As a guide, one of the market giants - the $6 billion SPDR® S&P®/ASX 200 ETF, holds shares in over 200 listed companies, spanning 11 industry sectors from financials and materials through to health care, technology and real estate. So, in a single fund holding, and potentially in just a single trade, an investor can gain low cost exposure to the broader Aussie share market.
Achieving the same level of diversification as a direct shareholder, would require significant capital, and quite likely involve paying substantial brokerage fees.
As Tim Bradbury observes, "Buying into just one or two ETFs offers wide exposure across a variety of underlying assets or markets, which investors can easily build on."
Bradbury points to other advantages that ETFs bring to a portfolio.
This includes the liquidity of being a listed fund, which allows investors to react to market events in real time.
ETFs are also very transparent. "ETF managers are required to disclose their investment holdings daily on their website, " Bradbury says. "This gives investors transparency into portfolio composition and risk exposure."
For many investors, it is the exceptionally low fees - the median expense ratio is around 0.44% - that have seen ETFs form a core component of their portfolio.
Benefits beyond equity markets
While the early ETFs focused on shares, today's investors can pick from close to 400 ETFs listed on the ASX, with exposure to a whole spectrum of asset classes.
This is democratising access to once hard-to-access investments such as government bonds.
It is also letting investors take advantage of defensive strategies, such as allocating part of the portfolio to gold as a hedge against inflation or geopolitical risks.
Interestingly, State Street Investment Management's 2025-26 ETF Impact report reveals that investors believe ETFs are allowing them to be more innovative - something made possible through ETFs covering alternative asset classes such as commodities, private credit, hedge funds, infrastructure, and even cryptocurrencies.
Selecting the ETFs that are right for you
With so many ETFs to pick from, it can be hard narrowing down the choice.
Glen Hare says investors need to align the ETF's investment objective(s) with their own financial goals and risk tolerance.
He adds, "It is also crucial to meticulously assess the associated costs, including the investment fee and potential brokerage fees, as these can significantly impact long term returns."
As smaller providers come onto the market, Tim Bradbury recommends looking at the brand name, track record, and the size of the fund and fund provider. Larger ETFs can exploit economies of scale to lower their fees. And, as Rakesh Shah adds, a fund with smaller assets under management could be at risk of closing down.
What lies ahead
Over the almost quarter-century since their launch in Australia, ETFs have consistently showcased their growth and innovation. And this is expected to continue.
As Tim Bradbury observes, "Markets are never predictable - and never will be. But if there's one lesson investors have learned over the years, it's that adaptability and flexibility matter.
"ETFs have expanded and evolved to become valuable tools that help investors to create and build wealth through being able to capitalise on opportunities, manage risks and optimise portfolio construction - all at very low cost."
It is these qualities that could see ETFs play a key role in your portfolio.
Important disclosure: Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441). Investing involves risk including the risk of loss of principal. You should seek professional advice and consider the product disclosure statement and target market determination, available at www.ssga.com/au, before deciding whether to acquire or continue to hold units in an ETF.
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