Concerns Rise Over U.S. ETF Market Growth
As of October 17, the U.S. exchange-traded fund (ETF) market is seeing an overwhelming surge of new products, sparking fears of a potential bubble. Some investors are starting to be more discerning about the funds they choose to support, leading to questions about how many of these ETFs will endure.
Following regulatory changes in 2019, which allowed for quicker launches of actively managed funds and funds using derivatives, the ETF industry has seen explosive growth. Recent regulatory approvals, particularly for new ETF share classes, are expected to further increase the number of available products. However, this rapid expansion has raised concerns among industry insiders regarding which ETFs deserve backing.
Drew Pettit, a U.S. equity strategist at Citigroup, commented on the current situation, noting that the rate of new launches is unsustainable and may lead to product rationalization and closures. He suggests that the industry is at risk of entering a bubble.
The growth in new products has pushed asset managers to explore more innovative offerings that stretch the boundaries of what was typically approved by the SEC. In the last two weeks, a number of managers focused on leveraged ETFs aimed at individual stocks have sought to introduce funds that could increase the value of selected stocks by three to five times daily. However, the SEC has imposed a leverage limit of two, and there remains uncertainty over whether these new applications will receive approval.
Ryan Sullivan, who has spent two decades in the ETF sector, remarked that financial advisors are increasingly selective when advising clients about which ETFs to consider. Although launching a new ETF has never been easier, achieving a successful launch seems to be getting tougher.
He notes that ETFs typically attract the attention of financial advisors when they have assets of $50 million to $100 million, but now, the benchmark is shifting to around $200 million.
The ongoing growth of the ETF market will also rely heavily on market makers, entities like Citadel Securities and Jane Street Capital, that enable buying and selling throughout the day and maintain trading spreads. Gavin Fillmore, chief revenue officer at Tidal Investment Group, indicated that market makers are beginning to express caution, emphasizing the need to be selective about which funds they support.
Despite some claiming that the industry isn’t facing a capacity shortage, they acknowledge that the rapid expansion brings its own challenges. Corey Lane, managing director at Citadel Securities, emphasized the growing demand for selectivity in the industry.
Explosion of New Products
Concerns are mounting regarding the sheer volume and scale of new products hitting the $13 trillion U.S. ETF market. In the first nine months of 2025 alone, around 794 new ETFs were launched, surpassing the 746 introduced in all of 2024. This trend indicates a looming possibility of exceeding 1,000 new launches by year’s end.
Year-to-date new investor inflows into U.S. ETFs surpassed $1 trillion, a milestone that last year took until December to achieve. Matthew Bartolini from State Street Investment Management predicts that inflows for all of 2025 could exceed last year’s record of $1.1 trillion, possibly hitting up to $1.4 trillion.
Currently, asset managers have little reason to slow the launch of new ETFs. Many are eager to create model portfolios that require additional ETFs to fill specific needs. “If a good idea emerges, expect to see at least 20 copycat ETFs,” noted Greg Stam, CEO of American Beacon Partners.
Analyst Dan Sotiroff from Morningstar expressed concern over the rising number of leveraged single-stock ETFs, which are being paired with options to generate income. Analysts at JPMorgan recently reported that selling related to these products may have contributed to a market decline.
On the other hand, some industry figures believe that there are sufficient investment funds to accommodate the influx of new products. Sean O’Hara, CEO of Pacer ETF, expressed frustration over concerns that the ETF market might be in bubble territory simply because the number of ETFs is greater than the publicly traded stocks available, drawing a parallel to the abundance of words compared to the alphabet.
