Exchange-traded funds (ETFs) were first launched in 1993 with the “Spider” S&P 500 fund. It took around 20 more years, but eventually the market realized that while ETFs are similar to mutual funds in many ways, they offered several advantages. This has led to a groundswell in fund issuance that seems only to be picking up steam.
During 2025, the market welcomed 1,1167 new ETFs and roughly three new ETFs have been listed every day, meaning we’re in the peculiar position of now having more ETFs than publicly traded stocks.
What the Numbers Tell Us
At the start of last year, there were more than 3,600 ETFs in the U.S. alone, approximately 7,400 mutual funds, and 2,000 investable stocks, leaving investors with over 13,000 pooled investment vehicles to chase a fairly narrow universe of underlying assets.
- In the late 1990s there were more than 6,500 publicly traded companies; today the number has fallen to approximately 4,700.
- The Wilshire 500 index once comprised over 7,500 companies (in 1998) and now tracks only about 3,300.
- While tens of thousands of companies are listed worldwide, only a small fraction of them are truly considered “investable.” Thanks to illiquidity, small market caps, and thin trading volumes, institutional investors realistically focus on perhaps 2,000 stocks.
The Drive Behind the Boom
Among the factors fueling the ETF explosion and public stock contraction, some are structural, while others are opportunistic:
Regulatory Burdens of Going Public
During the Obama administration in the 2010s, additional regulatory filings and red tape increased the burden of going public. Smaller firms often find the costs of going or staying public too high, which reduces the supply of newly listed companies.
An Abundance of Private Capital
Venture capital, private equity, and sovereign wealth funds now provide billions in financing. Companies can raise money, grow, and even provide liquidity events for early investors without ever going public, which equates to fewer IPOs and fewer stocks available to the public.
Investor Demand for Low Costs and Liquidity
ETFs offer daily trading, tax efficiency, and transparency, making them appear advantageous over many traditional mutual funds. Advisors, pensions, and retail investors have all embraced them, creating relentless demand for more products.
Wall Street Opportunism
The permutations now seem endless, with some funds offering single-stock exposure, as well as leveraged and inverse returns to various market segments, and esoteric underlying investments, cryptocurrencies, or commodities. Many of those ETFs are niche, duplicative, or overly complex, and they often carry higher fees. Their appeal may be limited, but they can attract traders chasing short-term returns or leverage to amplify their bets.
Dealing with the Ripple Effect
When public markets shrink while financial vehicles multiply, it can change the purpose of the market itself. Instead of channeling new capital to young companies and allowing ordinary investors to share in their growth, markets can become arenas for recycling exposure to the same limited pool of wealthy individuals and institutions.
An imbalance like that can distort valuations, concentrate flows into already dominant companies, and leave entire sectors underrepresented.
It also reduces transparency. With fewer firms willing to subject themselves to public reporting, more of the economy’s activity takes place behind closed doors, accessible only to large institutions and wealthy investors.
What is left to the broader investing public is an abundance of investment vehicles with a narrowing set of underlying opportunities.
For the individual investor, vigilance has never been more important. ETFs can still be powerful tools, given that low-cost index funds tracking broad benchmarks remain one of the best ways to build long-term wealth. But investors must separate durable products from gimmicks by scrutinizing what a fund holds, understanding how it generates its returns, and resisting the temptation of flashy marketing that promises high yield or leverage without clearly spelling out the risks.
In a market overrun with funds, discernment is essential.
It’s more important than ever to focus on simplicity, liquidity, and fundamentals in order to avoid becoming blinded by the trendy glitz of the ETF boom. At the same time, we continue to watch and see whether ETFs remain a democratizing force or quickly become another tool of the Wall Street marketing machine.
At the end of the day, the warning is as old as markets themselves. Caveat emptor. Let the buyer beware.
Disclaimer: Armbruster Capital Management’s views as portrayed in this post are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Investing involves risks, and the value of your investment will fluctuate over time; as a result, you may gain or lose money. Past performance is no guarantee of future results.
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