The ETF trend started pre-2008, but ETFs fit the investing post-crisis investment psychology particularly well. “I think passive investing has definitely benefited from the financial crisis,” JJ Kinahan, the chief market strategist at TD Ameritrade, told CNBC. “That is, many feel that by not taking individual stock risk and using ETFs that their risk will be less.”
One of the lasting legacies of the 2008 crisis “is a residual skittishness among individual investors regarding risk and financial markets,” Steve Sosnick, the chief options strategist at Interactive Brokers, said. “As a decade has passed risk tolerance has improved, but many feel safer investing passively or pre-hedged instruments like ETFs. Even sectoral ETFs have an appeal under that mentality: I think that homebuilders/semiconductors/biotechs seem like a good investment, but I can simply buy the industry rather than guessing which ones are most likely to benefit.”
ETFs, which were almost exclusively tied to passive indexes, grew slowly but steadily throughout the early 2000s. Assets declined from 2007 to 2008 as investors pulled out, but then began taking off.