Happy Halloween “observed”. I had no choice but to use some kind of scary synonym in the title, as we approach a Saturday Halloween. I wanted to revisit some observations from a couple of months back, and observe some trends in the Exchange-Traded Funds (ETF) world that are important to point out – and also may have many future implications.
Single Stock ETFs = Scary
ETFs that track the return of a single stock, either up or down, and typically with some kind of leverage, have been exploding since their introduction in 2022. These products are generally meant for the retail or trading crowd as a way to bet on a single stock’s direction over a short period of time. These products are being created on stocks with increasingly small market capitalizations, to the point where some of these products have a legitimate impact on the price of the underlying stock they intend to track. There is a valid use case for these products, in my opinion, if they can be utilized in direct index portfolios. Happy to chat more about that concept with anyone who wants to.
Sources: Carson Investment Research, Morningstar Direct 10/29/2026
Thematic and A.I. ETFs = Could be Spooky
Artificial Intelligence is possibly the ultimate thematic exposure in the markets today, and thematic exposures are expressed best in ETFs. Perhaps the least surprising thing to anyone following the space is the growth in both the number of products and the level of assets in ETFs in the A.I. world. I took the “purist” approach here as well and just used ETFs that explicitly call out “AI” in their naming convention, so not including semiconductors and other tech-related sectors in the AI buildout. Including those sectors, the numbers are very large. Each AI ETF is not created the same, and requires additional levels of due diligence to understand what you own; for example, several of these products have private exposure.
Sources: Carson Investment Research, Morningstar Direct 9/30/2026
Bond Fund Flows = Startling!
Switching gears a little bit, a startling observation to me has been the buy-the-dip, or should I say “lock in the yield” mentality of investors when it comes to fixed income. Despite a lackluster year for bonds, investors are piling into fixed income in both ETFs and mutual funds. We’ve seen a consistent outflow from almost all categories of mutual funds over recent years as investors switch to ETFs (very evident in the US Equity category), but fixed income has bucked that trend. Nearly $700 billion has flowed into bond funds just year-to-date! And that does not include money market products.
Sources: Carson Investment Research, Morningstar Direct 9/30/2026
“Sports” ETFs? Head Scratching
An almost inevitable trend has come to financial markets, with the launch of sports index futures. These products track the performance of a team, right now just MLB and NHL, and display that return in the form of an index that will likely be put into an investable ETF wrapper. Futures were the first financial instrument ever created, and that was done as a way to hedge assets – you can argue that same concept applies here. The limited number of parties involved with team or stadium ownership could use these products as a way to hedge their investment. But once these become investable in an ETF, that risk management tool transfers to speculation and becomes another avenue to bet, in my opinion. There are other ways to participate in sports and entertainment in the financial markets, via direct ownership either publicly or privately, that likely are much better investments. Could you imagine a 2x Milwaukee Brewers ETF?
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ETFs have many long-term benefits for investors – tax efficiency, lower cost, transparency, etc. – but they also have become very easy to launch and also close. This has created a world of “spaghetti on the wall” that leads to less desirable investor outcomes. As always, we’ll scrutinize and over-analyze ETF products to ensure our investors are in the right products and the right places so the ever-growing ETF universe is not so scary after all.
For more content by Grant Engelbart, VP, Investment Strategy & Research, click here.
9211408.1. – 30OCT26A
