Kathleen Moriarty knows a thing or two about ETFs, and then
A securities attorney with Katten Muchin Rosenman in
Manhattan, she helped launch SPDR S&P 500 (
) in 1993 and, thereby, what is now a $1.7 trillion industry in
the U.S. alone.
In fact, the size and global reach of the ETF sector surprises
Moriarty herself. "We were just hoping that SPDRs would be a
billion dollars," she said. "We never anticipated that ETFs would
be anything outside the U.S."
She was roped into the project when the fund planners decided
to structure the product as a unit investment trust rather than a
"I happened to specialize in that particular kind of entity,"
She also had the long and deep history with the Securities and
Exchange Commission that would be needed to get this brand-new
investment vehicle off the ground.
Her work on the world's first ETF earned her the nickname SPDR
Since then, Moriarty has kick-started several innovations in
the space, which won her ETF.com's inaugural lifetime achievement
award in March.
Among several pathbreaking projects, she is most proud ofSPDR
Gold Trust (
), which was the first commodity ETF at the time of its debut in
2004: "Lots of people were interested in holding gold, but
couldn't do so because it was just too hard to store."
Another concept that Moriarty helped pioneer is self-indexing,
for WisdomTree's 2006 inaugural launch of 20 ETFs, such as
theJapan Hedged Equity Fund (
). "WisdomTree wanted to create its own index," she said. "We had
to persuade the SEC to let us do that."
She is hard at work on another first. It's the
proposed ETF for virtual currency
, Winklevoss Bitcoin Trust. But she's not ready to divulge
details -- orders from the SEC, of course. "Basically, all I can
say is we're still moving along."
Moriarty anticipates a huge boom in the industry if the SEC
were to permit active, nontransparent ETFs. Freed from having to
reveal their portfolios every day, many new players -- active
managers who are reluctant to reveal their trading strategies --
would enter the ETF space, she believes.
But she understands that this is an issue of consequence for
federal regulators, with legal implications stemming from the
Investment Company Act of 1940: "Fundamentally, what the SEC is
going to be deciding is whether or not, if you permit that
structure, the trading price will continue to be as close to the
underlying net asset value as it is now for ETFs."
What worries Moriarty about the state of the industry is the
loose use of the term "ETF" itself.
"They have to have securities, and they can't have gold or
other property like that," she explained. "But everybody uses
'ETFs' for anything that's exchange traded that's held in a
When it comes to her own dollars, she hasn't been persuaded by
the fast-growing segment of actively managed ETFs. Conventional
wisdom has it that passive investing is likelier to be profitable
in the long term, because it is difficult for the average managed
fund to beat the benchmark indexes.
Active management also ends up costing the investor more.
So Moriarty knows where to turn.
"I only invest in SPDRs," she said. "Like many people, I want
to hold the S&P. I tend to use that as my core, and then I
tend to buy individual stocks instead of funds."