Exchange-traded funds have exploded in popularity over the past two decades. Their lower fees and ability to defer taxable capital gains distributions have turned them into the preferred vehicle for many investors.
Supply has followed that demand. As of May 20, 2026, more than 5,000 ETFs were changing hands on US exchanges. Some are index-tracking ETFs that have been around for decades, while others come from fundamental active managers who have started migrating to ETFs from mutual funds.
However, a number of riskier niche ETFs have come along for the ride. The trend isn’t anything new, and their numbers are set to increase substantially in the coming months.
Many are best used sparingly, if at all. Yet, there are some with legitimate long-term potential even if they’re becoming tougher to find.
On Deck
ETF launches have steadily increased year over year. Asset managers created more than 700 new ETFs in 2024 and bumped that number to 1,100 in 2025. Not to be outdone, another 575 have landed on exchanges this year through May 20, or about six new ETFs for every trading day in 2026.
Even more are waiting in the wings. As of May 20, Morningstar’s ETF prelaunch database had identified more than 2,600 ETF registrations sitting with the Securities and Exchange Commission. That means the total number of ETFs trading on US exchanges could eclipse 7,000 by the end of this year, assuming existing ETFs don’t shut down, and all registrations come to market.
As of mid-May, the list of prospective ETFs spanned a wide range of tactics and strategies. Several asset managers applied for 3, 4, or 5 times levered and inverse ETFs late last year. They accounted for nearly 600 ETFs on the list, but they will never see the light of day. Fortunately, the SEC already said “no” to them back in December. However, there were another 900 on the list that are levered 2 times long or short, which means they land within the SEC’s allowable value-at-risk limits.
Such ETFs typically reset their leverage each day, which makes them difficult to justify over any time horizon. They’re subject to unpredictable movements on any given day. Longer periods expose them to volatility drag, a phenomenon that causes volatile price movements to eat away at an investment’s growth.
Most of the roughly 1,000 ETFs that remain are an eclectic mix: thematic ETFs, crypto and crypto-adjacent ETFs, and various others that use derivatives in creative ways to produce income, provide a degree of downside protection, or otherwise re-engineer the risk-return profile of an asset.
In other words, these are not the types of actively managed ETFs that headlines imply are leading a resurgence in actively managed strategies. They are not tracking an index, but they are also not overseen by a shrewd manager selecting stocks or bonds and holding them patiently.
The Good Stuff
The list includes a small group that appears to have some potential. Such ETFs come from institutions with an Above Average or High Parent Pillar rating: firms like Dimensional, Baillie Gifford, Avantis, JP Morgan, Vanguard, and Primecap, among others. They typically charge reasonably low fees, and most are steered by experienced teams or managers that follow sensible processes. In certain instances, they may closely follow a time-tested approach employed on an existing mutual fund.
These ETFs are few and far between, though. They represent less than 2% of the 2,600-plus ETFs on the prelaunch list. Similar ETFs should roll out in the coming months and years as more fundamental active managers make the move to ETFs from mutual funds.
More spaghetti is being blasted at the wall, and the ETF market is set to become even more crowded. Sensible new strategies exist, but they’re getting harder to find and risk being overshadowed by shiny new trends.