Wim Zwanenburg: ETF boom or ETF bubble?

November 7, 2025

^{This article was originally written in Dutch. This is an English translation.}

In the US, there are now more ETFs than listed shares. The ETF sector is also growing strongly in Europe. But is the range of products becoming too complex and volatile?

By Wim Zwanenburg, investment strategist at Stroeve Lemberger, written in a personal capacity.

Since the launch of the first Exchange Traded Fund in 1993, the ETF sector has grown at a rapid pace. According to Bloomberg and Morningstar, there are now more than 4,300 ETFs listed in the US, exceeding the approximately 4,200 individual stocks available on stock exchanges. Globally, ETFs now manage $13.8 trillion in assets, with annual growth of 20% since 2008. ETFs have transformed the investment world. Traditional investment funds are increasingly being replaced by ETFs, which can give investors exposure to hundreds of companies at any time the stock market is open with a single simple transaction.

ETFs started out as index funds that could be traded at increasingly lower rates. Over the past few decades, the number of providers worldwide has grown enormously. The introduction of index baskets was followed by “smart beta” ETFs, which allowed investors to try to achieve “outperformance” by selecting specific factors. Over the past 10 years, thematic ETFs in particular have become popular. The variety is now astonishing: from index funds and bond ETFs to more exotic products with individual shares and leveraged products.

Most ETFs are therefore no longer passive funds. Active ETFs, with their deviation from the weighting in their benchmark, are particularly on the rise. Whether these active ETFs actually consistently outperform the index is, of course, the question. Ironically, institutional investors are increasingly turning to passive, market-weighted investing in ETFs, other index funds and direct mandates because they cannot keep up with the market with their equity investments. However, the “move to passive” is increasing concentration in the market, as institutional investors were under-owned in technology funds and the Magnificent Seven.

The introduction of ETFs as an instrument has put enormous pressure on the management fees of investment funds. Fierce competition has also made ETFs themselves cheaper. However, by broadening their offering with thematic ETFs with higher fees and active ETFs, fund providers are still trying to increase their revenues. Trading through continuous deposits and withdrawals in ETFs has become so attractive to stock exchange organisations that they are now seeking more ETF listings rather than IPOs.

Ten years ago, ETFs accounted for only 9% of all investment vehicles. Today, that figure is almost a quarter. ETFs have become the building blocks of portfolios for both institutional and retail investors. Despite trade wars, geopolitical shocks and uncertainty at the Fed, retail investors have poured more than $500 billion into ETFs in the first half of 2025, putting the market on track to surpass last year's record $1.12 trillion in inflows.

Many investors use ETFs as an asset allocation tool. This has led to an increase in speculative money and capital flows and volatility on the stock markets. On the positive side, ETFs have democratised investing: millions of retail investors have gained low-cost access to broad markets, commodities and even niche strategies that were previously only accessible to hedge funds. At the same time, retail investors have flocked to highly volatile leveraged, inverse and thematic ETFs. In the current climate of major geopolitical uncertainty, this could well be a contrary warning signal.