How many ETFs are too many?

Choice is good for investors, and the boom in exchange-traded funds (ETFs) has drawn new investors into markets and forced asset managers to compete on fees. But a new report from TD Securities looks at how ETF launches have gone into “overdrive” this year and what that means for markets.

Even in a banner year for ETF launches, this week was notable. Single-stock ETFs have been one of the hottest trends in Canada and the U.S., according to the TD Securities report, with 30 products launched in Canada this year and 130 in the U.S. as of Aug. 1.

But those figures were almost immediately out of date. By the end of the week, Purpose Investments Inc., Harvest Portfolios Group Inc. and Ninepoint Partners LP had each launched suites of 10 new single-stock ETFs that invest in blue-chip Canadian companies and use covered calls for monthly income. Harvest and Ninepoint also introduced ETFs that wrap the 10 single-stock ETFs into a single product.

Purpose launched the first single-stock ETFs in Canada in December, 2022, which tracked large U.S. companies such as the Magnificent Seven tech stocks, and Harvest followed last year.

“Since then, single-stock, yield-enhanced ETFs have been one of the fastest-growing areas of the Canadian ETF market,” the TD Securities report says, bringing in $1.1-billion in assets so far this year.

But even without the momentum from single-stock funds, launches are setting records this year. As of Aug. 1, 211 new ETFs had launched in Canada, or 1.4 new funds introduced every trading day, according to the TD Securities report. (In the U.S., 570 new ETFs had launched, or 3.8 a day.) That means last year’s record of 229 new ETFs in Canada has already been broken.

Other new strategies, such as ETFs that offer exposure to collateralized loan obligations (CLOs) and alternative cryptocurrencies, have also contributed to the launches.

While fear of missing out among investors is well understood, especially in frothy markets, the TD Securities report says FOMO is a driver for fund manufacturers as well.

“Once a novel product idea comes to the ETF market, many ETF issuers rush to the market and launch several similar products,” it says. “As an example, Canadian ETF issuers this year rushed to launch eight AAA CLO ETFs within two months, making the space fairly crowded for the size of the Canadian market.”

What’s the impact of that crowding? There are now more than 1,700 ETFs in Canada, far more than any advisor would care to learn about.

For issuers, rushing to launch new products often creates pressure to attract investors by competing on fees. For example, Ninepoint waived the management fees on its new single-stock ETFs until Feb. 28, 2026.

“From an issuer’s perspective, new ETFs need to gather assets; otherwise, the mounting costs will lead to closures,” the TD Securities report says, but it also warns that competing on fees can squeeze margins.

More esoterically, a surge in the number of products can create issues for market makers, who have limited seed capital, the report says, and can only support so many ETFs.

But until that equilibrium is reached, the report says, “the pace of new ETF launches seems like it won’t abate.”

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