This Bonkers ETF Market: The Zine Edition
Dave NadigWed, September 23, 2026 at 2:25 AM GMT+3 10 min read
ETFs are like family to me. I've spent most of my career in the ETF weeds, and for what felt like pretty noble reasons: they've made investing cheaper, easier and more transparent. For everyone!
But as an ecosystem — a community of issuers, market makers, exchanges, index providers, pundits, media, data providers, lawyers and more — we've gotten awfully good at putting things other than simple stocks and bonds in ETFs, and a little less interested in whether they're actually any good.
At Future Proof in Huntington Beach last week, I tried to squeeze that argument into a 16-page zine and 15 minute talk. Here's a written version.
The State of Things
By my count, 1,508 U.S. ETFs launched in the twelve months through August. That's about 29 a week. You cannot give every new ticker a thoughtful afternoon. There aren't enough afternoons.
This seeming abundance isn't just targeting degenerate retail, it's also targeting advisors. A killer Q2 AdvizorPro's study of 5,400 RIAs found the average RIA has grown their approved/used list from average ETF from 88 to 93 tickers. Adding 5 funds over the course of a year may not sound like a big deal, but every new ticker is a real, different thing that somebody has to understand, explain to clients and monitor.
This is counter to the what advisors have been saying they want for years: fewer, deeper relationships. It's not that I don't believe it when an advisor tells me they want to pare down their inbound wholesaler schedule, it's just that, honestly, as a group, advisors aren't doing it. Instead, the industry's product development onslaught has become advisor homework.
And what are y'all buying? Well it's not just cheap beta anymore. It's active. It's derivatives. It's income. It's alts. It's everything.
For years, fees offered a useful shortcut through the ETF Big Box Store: when in doubt, buy cheap. But FactSet's Elisabeth Kashner found higher-fee funds gaining share in five of ten active segments — and active is what's been getting flows. Obviously, folks pay up when they think something's useful, so the question is, what are people paying for?
I tend to think of ETFs as just another packaged service: if I want broad and boring exposure, well, i want it cheap and well designed. If I'm handing off portfolio decision making, or looking for a weird payout pattern? Explain why you're earning that fee.
Options!!
One place where advisors are definitely paying up is anywhere options are used. As Todd Sohn of Baird Strategas points out, the math is legit. A pretty standard equity income product like JP Morgan's JEPI offers a 7.6% indicated yield with 8% volatility, against TLT's 4.8% and 14%. These are not stupid people opting out of Treasuries.
Of course, because we've had funds like JEPI catch the world on fire (>$40 billion in 5-year flow, $4.5B this year!), we now have hundreds upon hundreds of options-based ETFs, promising exaggerated distribution yields that rely on giving investors their own money back on levered single stock bets sitting along side very boring buy-write strategies, so even in the narrow category of options income, advisors face a wolf/sheep dilemma.
One place where the wolves are mostly absent, thankfully, is in buffer ETFs.
While plenty of smart math nerds on Twitter will point out that over a long time horizon, there are slightly more efficient ways to get buffer-like returns, they're missing the point. Buffered funds provide a unique and powerful behavioral hack that helps panicky folks stay invested.
In fact, buffers are such a good behavior hack that it's one of the only categories of funds where the investors are beating their own funds. Morningstar found that investor returns exceeded fund returns over 3-and-5 year windows, meaning they correctly timed their entries and exits.
My suspicion is that a defined payoff helps some nervous investors stay in their seats, or take on exposure in scary moments. The study doesn't prove that explanation, but anything that keeps the nervous invested is, in general, a good thing.
Leverage
Leveraged and inverse ETFs have also been a big deal in 2026, especially single-stock leverage. Morningstar's single-stock ETF study, through August 14, estimated issuers had collected $506 million in management fees, while the average since-inception fund return was minus 38%. Essentially nobody but issuers is making money with these things, and I'd hope anyone but a completely out of control day-trader would be avoiding these things like the plague.
But! I have no philosophical objection to leverage. It's just a sharp tool. In the "tools for good" category, return stacking has gone from being just the name of a firm (ReturnStacked) to an entire asset class. Even Blackrock has jumped into the mix. The core idea of using your boring asset class (stocks/bonds) to lever into a diversifier (managed futures, gold, whatever) is both mathematically sound and elegent, and I suspect when all the dust settles (and a few hundred funds close) the stacked products will not only be around, but be as big a category as options income is today.
Tax Shenanigans & Private Assets? Sure.
At Future Proof I didn't dwell on the rise of Section 351 exchanges (allowing investors to swap a sloppy, diversified personal portfolio for a clean, diversified ETF), or tax aware long/short or box spreads and their ilk, because we had whole sessions from Brent Sullivan at Tax Alpha Insider and Ryan Kirlin at Alpha Architect on those. But they're real, and worth paying lots of attention to over the coming year.
Similarly, the industry's love affair with using the 15% of their funds that are allowed to be illiquid under the '40 Act continues. While I gave ERShares both a lot of criticism and credit for "discovering" this ability to use the 15% illiquid sleeve (which mutual funds have been doing since the 1990s), it's becoming almost de rigueur for any new thematic ETF to load up on the private side. Case in point: TEMA's new Prediction Market ecosystem ETF (DICE), which holds Kalshi and Polymarket in the private bucket, filling out the rest of the theme with public companies. Expect this to become common. It's not an issue yet... but I do worry about so many ETFs loading up on the same illiquid shares.
The Big Bummers: Gambling and Regulators
So for me, all of the above is pretty business as usual. Background noise to the real issues, which are the pollution of U.S. market structure.
It starts with the U.S. gambling addiction. After decades of arguing State's rights, the current administration has simply decided they no longer apply to gambling, despite a long history of unique state-by-state approaches. While there may be a few fighting-retreats, this is a lost war. Under the guise of "predicting" everything from the MNF point spread to the World Series opening pitch, every confusing, vig-encrusted bad bet is coming not just to your 15-year-old's phone, but to your client's brokerage accounts.
If you think this isn't your problem, check out Betterment's survey, showing 52% of Gen Z investors redirecting investing money into sports betting during the previous year.
And if you think this is just a problem for "the poors" the news is even worse. The Urban Institute's recent study found gambling penetration rising with income levels.
The industry (which now includes exchanges, ETF issuers, bookies, prediction markets, crypto folks and an octopus of co-conspirators) is absolutely counting on investors not paying attention.
We've had 342 MLB and NHL ETFs proposed since mid-August—150 baseball funds and 192 hockey funds, with all the baseball filings arriving September 21. Plenty come with cute tickers designed to sucker in fans (Any Marlin's fans wanna buy FISH? Or Ducks fans lever up on QUAK?). All suck up resources at regulators, exchanges, market makers, collateral pools and actual investment shops that could be used to do something as quaint as "enrich investors."
Put another way: the entire derivatives ecosystem (you know, the one we regulate to manage important economic risks like crop delivery and energy supply) is being overwhelmed by wagering.
What could possibly go wrong?
My fervent plea to every advisor: PLEASE ask your clients about their — and especially their children's — gambling and cowboy-trading accounts. You don't need to moralize over it, but you do need to make sure you've protected family assets from internal threats: the client who surreptitiously hides gambling losses from a spouse, the young professional who gets in over their head and tries to tap the trust. It's already happening. It will only get worse.
And, sadly, the regulators are not on your side. They're honestly not on your side in any capacity right now.
Total SEC enforcement actions fell from 784 in fiscal 2023 to 456 in 2025. GAO counted 235 departures from Enforcement in 2025 (out of 871 departures). The SEC says it is "emphasizing fraud" over case volume.
This collapse in enforcement has paired with an explosion of pardons specifically for financial fraud impacting actual investors.
Again, you may be all for this lighter touch but there is an aggrieved investor on the other end of all these cancelled restitutions and forfeitures. Don't become an aggrieved investor. Pick your partners extremely carefully.
And then there's the assault on transparency.
We were looking forward to things like monthly fund disclosures. The SEC has is scrapping that. We had an assault on quarterly filings (in favor of semi-annual.) That seems to have faded but will likely return. We have hundreds of data series across the economy that this administration has consolidated away (good for folks like Haver and Bloomberg!), and a Request For Comments to allow the industry private, closed door consultation on novel product filings (precisely the ones that need public scrutiny.)
In short: all signs point to giving you less information about what your investing in, later, and then being less likley to do anything about the bad actors who abuse that opacity.
Falling Sky Protection: Documentation
If all this sounds a little dramatic, that's a fair critique, so let me leave you with one takeaway. Have a written policy for what rubric you use to add new ETFs in client portfolios. As a class, 2/3 of you are adding more products. Just write down why. Go through a pen-on-paper, no-AI-involved exercise of writing down why every ticker in a client portfolio is there, and why not an alternative. Off the top of your head.
Most good ETFs are boring. The answers on your paper should be obvious. Each ETF should have a job, do it well, and be as cheap as possible. You don't have to find a place in the portfolio for every news headline with a ticker attached.
P.S. - I'll go deeper on all of this in an upcoming Kitces webinar with live Q&A on October 6 at 3 p.m. Eastern. Until then, the Huntington Beach zine's full companion has the charts and research receipts.
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