The Most Interesting ETF Industry Innovations of The Last Decade

This article is dedicated to ETF Pioneer Kathleen Moriarty, also known as "SPDR Woman," who played an influential role in the creation of the landmark SPDR S&P 500 ETF (SPY (NYSE:SPY)).

Who would've thought that a simple S&P 500 index ETF created in 1993 would have resulted in the colorful assortment of ETF strategies we have today? With SPY recently celebrating its 30-year anniversary, I thought it would be instructive to take a look at the current / next generation of ETFs to see what's going on and what's on offer.

What I found was an ecosystem of innovation, risk-taking, and entrepreneurial spirit. Thanks to the proliferation of ETF white labeling services, the ability to launch a novel and interesting fund has never been easier or more affordable. Here's a look at some of the coolest ETF trends in recent year.

Single-bond ETFs

Fixed-income investors looking for more liquid ways to bet on specific Treasury tenors were pleasantly surprised in August 2022 when the U.S. Benchmark Series of single-bond ETFs were launched. Currently, the firm has a series of 10 ETFs tracking Treasurys ranging from 3 months to 30 years in maturity.

Unlike other Treasury ETFs that hold a ladder of different maturities, these ETFs only hold the latest on the run Treasury for a specific tenor, allowing for a precise yield curve play. For example, the U.S. Treasury 10 Year Note ETF (UTEN) only holds the current U.S. 10 Year Treasury Note.

At a 0.15% expense ratio, these ETFs provide investors the ability to make a precise yield curve play, benefit from monthly distributions, and benefit from the liquidity and transparency of the ETF structure. Gone are the days of buying individual issues on TreasuryDirect!

Buffer ETFs

Most ETFs with derivative strategies use relatively simply strategies, such as covered calls or protective puts. A few more advanced ones used strategies like options collars. This changed in 2018 when Innovator ETFs listed the first "Defined Outcome" ETFs.

Also known as "buffer" ETFs, these products use options strategies to provide built-in protection against a certain degree of downside risk over a particular period of time. They come in different variants in terms of buffer levels, benchmark index exposure, and outcome periods.

For example, the Innovator U.S. Equity Buffer ETF - January (BJAN) tracks the S&P 500, provides a starting buffer of 9%, and caps returns at 25.06% for the period dated January 1st, 2023 to December 31st, 2023. During a rising interest rate environment, these ETFs became a popular replacement for bonds.

Political ETFs

Much like Thanksgiving dinner with relatives, it's impossible to avoid discussion of politics in life. The ETF industry got its first taste of politically oriented investing in October 2022 with the launch of the unabashedly right-wing, jingoistic-sounding God Bless America ETF (YALL).

YALL is actively managed, selecting 30-40 U.S. stocks that "possess a track record of creating strong domestic job growth for Americans". It also excludes companies that either endorse politically left social agendas, engaged in activism or make left-leaning public statements ("virtue signaling").

This got hiked up to another level in February 2023 with the launch of the Unusual Whales Subversive Democratic Trading ETF (NANC) and its counterpart, the Unusual Whales Subversive Republican Trading ETF (KRUZ), which track congressional stock trades on both sides of the political spectrum.

Personality ETFs

The latest wacky thematic ETF to hit the market is arguably the Inverse Cramer Tracker ETF (SJIM). Launched by Tuttle Capital Management in March 2023, this ETF brought to life the idea of "Inverse Cramer", an idea that has been trending for a while on financial social media.

On Twitter and r/WallStreetBets alike, jokes and backtests have persisted for years on how effective betting against Jim Cramer's stock picks would be. After countless memes and jests, an enterprising and daring ETF manager out there finally brought it to life in the form of SJIM.

For a deep dive on SJIM, give my earlier article on it a read. I think this ETF demonstrates how to properly market an investment thesis to the Gen Z crowd, who grew up on a diet of memes and social media. ETF giants should take a page out of Tuttle's books if they want to capture this market segment.

This content was originally published by our partners at ETF Central.