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Q1 2025 featured a more than 25% annual increase in new U.S. ETFs
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Some of last year’s themes remain hot, but new strategies have caught investors’ attention
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We highlight today’s growth spots and call out potential risks
Investors just can’t get enough of ETFs, and issuers are more than happy to oblige. Through the middle of last week—still with a handful of days left in the quarter—208 new U.S. ETFs were launched in Q1, according to Wall Street Horizon data. Easily a record, it tops the 160 total from the first quarter of 2024. Our chart tells the story as the four-quarter moving average has been on the ascent since Q3 2023.
We’ll get into the details and the drivers later, but the upshot is that, despite volatility running high in recent months and downright bearish investor sentiment, more access to more ETFs has been an enduring theme.
A Quarterly Record in U.S. ETF Launches
Source: Wall Street Horizon
According to a March Brown Brothers Harriman survey, 95% of investors plan to increase their ETF allocations in the next 12 months. Not surprisingly, Bloomberg’s Isabelle Lee reported last week that total assets held by U.S. active ETFs crossed the $1 trillion mark for the first time.
There’s an ongoing boom, one that touches all investor types. Last fall, we called out that yield, protection, and cryptocurrency were among the bullish x-factors for 2024’s ETF bull market. Those trends persist, and new ones appear to be gaining steam.
ARKK: The Matriarch of Active ETFs
TMX VettaFi reports that active ETFs are particularly interesting to investors today. Born out of a surge in mutual fund-to-ETF conversions, active ETFs grew substantially in 2024, a trend that is anticipated to continue in the quarters ahead. Years ago, the ARK Innovation ETF (NYSE:ARKK) brought active ETFs into the mainstream as the product managed by Cathie Wood soared during the pandemic thanks to significant rises in shares of Tesla (NASDAQ:TSLA) and other high-growth stocks.
Active ETFs differ from mutual funds for a variety of reasons, but maybe the most important feature is that ETFs must disclose their positions daily. Active fund managers were perhaps initially reticent to adopt the ETF wrapper as a product offering, but they appear to be coming around to what investors seemingly demand more of with each passing quarter.
Tom Lee & Ray Dalio Strategies Tip-Off
Fundstrat, an independent financial research boutique led by Tom Lee, head of research, got in on the ETF game, too. Fundstrat Capital launched the Granny Shots U.S. Large Cap ETF (NYSE:GRNY) last November, broadly designed to hold stocks deemed “granny shots,” or high-reward-potential ideas, and named after the unconventional basketball free-throw method. GRNY has attracted significant inflows—total assets under management are already approaching $1 billion less than five months since its inception.
Then, just last month, SSGA Funds launched the SPDR Bridgewater ALL Weather ETF (NASDAQ:ALLW), a multi-asset allocation fund generally intended to follow the investing wisdom and famed principles of Bridgewater Associates founder Ray Dalio. While Tom Lee’s GRNY) primarily home in on U.S. growth equities, ALLW focuses on macro themes and spreading exposure across asset classes and markets. The fund is marketed as making available hedge-fund-like exposure to retail investors via the efficient ETF wrapper.
Word on the Street
ETF strategies are getting even more complex. At last week’s Exchange Conference in Las Vegas, Bloomberg’s Eric Balchunas commented that some of 2024’s big themes, though still notable, are not as hot. New niches, like private equity and private credit ETFs, are in the spotlight.
ESG Funds: A Second Life?
There are also inklings that a less trendy ETF trend—ESG funds—could make a comeback. The environmental, social, and governance movement was all the rage pre-pandemic, but critics contended that some companies went too far. Perceived missteps by companies like Target (NYSE:TGT) and brands like Bud Light (owned by Anheuser-Busch InBev (NYSE:BUD)) resulted in consumer backlash. At a macro level, Putin’s war in Ukraine and the resulting European energy crisis underscored that ESG for ESG’s sake may not have been the best approach.
Of course, recent U.S. political developments have made “ESG” a “dirty phrase” in some circles. But, as WealthManagement.com reported, there has been some renewed interest in the movement for some of those very same reasons. It would not be surprising to see new twists on ESG—climate change, equality, and the state of corporate leadership are issues that could be at the top of the mind going forward.
On the investment data front, Dr. Ron Dembo, CEO of Riskthinking.ai, commented on the lack of collaboration and data sharing within financial institutions and limitations of regulators in the latest TMX podcast “Financial Institutions Repricing Financial Risk with the Effects of Climate Change.”
The Risks
Amid any boom, it’s helpful exercise to consider what could disrupt the trend. ETFs seem to be here to stay but could growth slow? And why might that occur? One potential hurdle is the unknown around regulation. A new administration is in place—one purported to focus on cutting red tape—but it is unclear how the ETF industry may be impacted.
Moreover, the sheer volume of new launches has led to a crowded field. With thousands of funds vying for attention, ticker symbol shortages have even emerged, a quirky side effect we noted last year.
Third, to circle back to one of the key drivers of 2025’s early-year ETF proliferation, active ETFs are almost inherently costlier than their passive peers. Vanguard Group announced a fresh set of fee cuts in February. If so many complicated active ETF strategies don’t pan out in the years ahead, dirt-cheap index products could be flocked to at the expense of catchy new funds. We’ll just have to wait and see on that front.
The Bottom Line
US ETFs are already pacing for a record year. New launches come about fast and furious, with many funds being of the active variety. Investors clamored for juicy high-yield, downside protection, and crypto-related products in 2024, but new themes have emerged that issuers are pouncing on. Even with “uncertainty” being the word of the day and macro jitters aplenty, the ETF freight train keeps chugging.