ETF Launches Reach Record Quantity. Quality? Not So Much

More isn’t always better.

A total of 233 new ETFs hit the market during the first quarter of 2025 — a record number fueled by options-based and leveraged funds. ETF sponsors may be taking a spray-and-pray approach with new products in a portion of cases, since some won’t attract enough assets to remain viable and may liquidate in a couple of years or less. What’s more, many of the new class of ETFs simply aren’t in buyers’ best interests, since leveraged or complex strategies don’t add much value, said Bryan Armour, director of ETF and passive strategies at Morningstar. 

And not insignificantly, they are expensive. The average fee among ETFs launched in the first three quarters of the year was 79 basis points, he noted. The proliferation of active ETFs has notched fees up since 2023, but average fees over the past decade for new ETFs have been about 50 basis points. “The new launches this year have been about enriching the issuers, not the investors,” he said.

Volatility City

The biggest categories for new launches have been leveraged ETFs (38), buffer ETFs (33), derivative income (covered call) ETFs (22), and crypto ETFs (12), Morningstar data show. Options-based products focused on objectives and outcomes (including buffer and covered-call ETFs) have been a snowballing trend over several years, gaining momentum amid volatile markets. 

Then there’s the newer trend, “the casino side, which is mostly single-stock leveraged ETFs,” Armour said. Halfway through April, there have been at least 288 ETFs launched this year, according to VettaFi. That compares with just 120 ETFs launched in the same timeframe in 2024. The rise is driven by an explosion in active ETFs, which account for 70% of the new products, per VettaFi’s Kirsten Chang. Some of the newer categories include hedge-fund-like strategies, an endowment-style ETF, leveraged crypto ETFs, and a catastrophe bond ETF, Chang noted. The top issuers of new ETFs during the first quarter were, according to Morningstar:

• iShares (15)
• First Trust (10)
• GraniteShares (10)
• Innovator (10)
• Defiance (9)

Parting Words: The deluge of ETFs will be met with mixed success, and products that aren’t well thought out, and costly, may not be long for this world. A lot of the new ETFs will likely liquidate before establishing significant track records, Armour said. “Most of them I don’t think have gathered much by way of assets,” he said. “Some asset managers are just throwing spaghetti on the wall.”