Episode Summary
Executive Summary: This episode of Trillions analyzes the ETF industry's record-breaking 2025, achieving a 'triple crown' of record launches, flows, and volume. Hosts Eric Balchunas and Joel Weber, with guests Todd Sohn and Katie Greifeld, discuss the surge in leveraged and single-stock ETFs, the dominance of passive flows into funds like VOO, and the revival of thematic funds. They also explore structural challenges for small caps and low-volatility strategies, the impact of ETF share classes, and the potential for consolidation, highlighting the industry's evolution and investor behavior.
Main Topics: Record-Breaking ETF Launches (Priority: 5/5): Discussion of the unprecedented number of ETF launches in 2025, driven largely by leveraged and single-stock ETFs, with over 930 launches and potential to exceed 1,000. The trend reflects a 'degen' culture and issuer competition. Flows and Investor Behavior (Priority: 5/5): Analysis of record ETF flows exceeding $1.24 trillion, led by VOO and IVV, with investors buying equities despite volatility. Thematic funds and gold also saw significant inflows, while small caps and low-volatility strategies lagged. Volume and Liquidity Dynamics (Priority: 4/5): Examination of record trading volume, projected at $60 trillion, driven by leveraged ETFs and institutional use. U.S. ETFs act as a 'vampire' sucking liquidity from global markets, reinforcing their dominance. Structural Challenges for Small Caps and Low Vol (Priority: 4/5): Discussion of why small caps and low-volatility ETFs underperformed, citing structural issues like acquisitions by mega-caps and competition from buffer ETFs and Treasury bills. Active ETFs and Industry Consolidation (Priority: 4/5): Coverage of the rise of active ETFs, including buffer ETFs and the Innovator acquisition by Goldman Sachs. The trend points to consolidation, with a few giants dominating and niche players emerging. Future Outlook: ETF Share Classes and Money Markets (Priority: 3/5): Speculation on 2026 trends, including the potential impact of ETF share classes on mutual fund outflows and the shift of money market assets into active fixed-income ETFs.
Key Arguments: The ETF industry achieved a rare 'triple crown' in 2025 with record launches, flows, and volume, each breaking previous records by double-digit percentages. Leveraged and single-stock ETFs are a major driver of launches and volume, but many are at risk of closure in a market downturn, though investors seem unfazed. Passive flows into broad market ETFs like VOO and IVV dominate, reflecting a 'buy equities and don't be scared' mentality, even during volatility. Small caps face structural headwinds because promising companies are acquired by mega-caps before they can grow, or they delay IPOs until they are large caps. Low-volatility ETFs are losing relevance due to competition from buffer ETFs, which offer defined outcomes, and high yields on Treasury bills. The U.S. ETF market acts as a liquidity 'vampire,' attracting global institutional flows due to its depth, making it hard for foreign ETFs to compete. Consolidation is inevitable, with BlackRock, Vanguard, and State Street likely controlling 75% of assets, while niche players survive. ETF share classes could trigger a massive shift of mutual fund assets into ETFs, boosting flows but representing 'BYOA' sentiment rather than organic growth.
Data Points: ETF Launches in 2025: 930+ (potential 1,000-1,150) - Record high, nearly doubling the previous record of 550 from two years ago. ETF Flows in 2025: $1.24 trillion (projected $1.3 trillion) - Record, surpassing last year's $1.1 trillion record. VOO Flows: $124 billion (potential $140-150 billion) - Record for a single ETF in a year. ETF Trading Volume in 2025: $53.5 trillion (projected $60 trillion) - Record, exceeding 2022's $47 trillion record. Leveraged ETFs as Share of Volume: 10% - Despite making up only 1% of assets, they account for 10% of trading volume. New ETF Firms in Past Two Years: 60 - Total firms now around 300 with 600 brands. Goldman Sachs Market Share After Innovator Acquisition: 0.5% - Moved from 17th to 15th place despite a $2 billion acquisition. Mutual Fund Outflows: Negative $700 billion - Contrasts with ETF inflows, indicating a shift from mutual funds.
Pivotal Quotes: "If you can't catch fish in this environment, like you are using the wrong bait, you're a bad fisherman, you gotta go." — Eric Balchunas: Commenting on the ease of attracting flows in the current ETF market, with 3,379 of 4,769 ETFs seeing inflows. "The U.S. is kind of like a vampire sucking liquidity from all over the world." — Todd Sohn: Describing how U.S. ETFs dominate global liquidity, drawing institutional flows away from local ETFs. "It's hell for issuers, heaven for investors." — Eric Balchunas: Summarizing the competitive ETF landscape where investors benefit from low costs and innovation, but issuers struggle to gain market share.
Implications: The ETF industry's record-breaking year signals continued dominance and innovation, but also risks from leveraged products and consolidation. Investors benefit from low costs and liquidity, while issuers face intense competition. Future growth may come from active ETFs and share classes, reshaping asset management.
From the Transcript
Year, Joel, 1.24 trillion with a T, and there's still a month to go. And December podcast about this, I think they'll see 60 billion in December. That's about the monthly haul lately. And so I think we're going to end at 1.3 trillion. Now, that'll be 200 billion over the record. The record last year was 1.1 trillion. And again, that was the record. Like, it's just record after record. When we look at that number, it's enormous. If I take you over to mutual funds, Collectively, I think they're around negative $700 billion in outflows. So there's like more money going to ETFs than leaving mutual funds. All the equity side is worse. And if we look at the number of ETFs that have taken in flows, we are at 3,379 of 4,769. So that's, I mean, the getting is good. I mean, everybody's getting bites. If you're in that 1,000 that's not, you should probably just pack it up. I mean, because if you can't catch fish, In this environment, like you are using the wrong bait, you're a bad fisherman, you gotta go.
World this year, pretty much. And the volume isn't growing as fast as you think it would overseas. If you are a pension fund in Japan, let's say, you might use EWJ over your own homegrown Japan ETF, which is weird, right? But these institutions, the bigger you are, the more you require deep liquidity. So the U.S. is kind of like a vampire sucking liquidity from all over the world. And it's unfortunate. And there are certain ways these countries are trying to fight back, but it's hard because. It's just tough. You put out like a gold ETF in your country, and then this institution is like, well, GLD trades like $4 billion a day. You trade like $10 million a day, if that. And they don't want to, they're going to be, they're going to put a $40 million position on. They're obviously going to go to the more liquid one. You're seeing that in listings overall when it comes to companies as well. That people are listing their companies in the U.S. because that's where the liquidity is. That's where the depth of capital markets is. And I feel like, you know, this is a tentacle of that, that you're.
Place. Think about it. You're Goldman Sachs, one of the biggest brands in the world. You've been in the ETF market 15 years. You just bought a firm for $2 billion and you still have 0.5% market share. That's how brutal this industry is, Joel. And that's how big Vanguard and BlackRock are, by the way. I mean, it's just, the numbers are staggering. It's like when you look at the planets and you see Earth and Neptune, they put Jupiter on there, and you're like, oh my God. It's just another level of these big firms. And it just shows you. How tough this industry is, but the reason it's so tough is'cause the products are also good, are pretty competitive, and the investors like it. So it's hell for issuers, heaven for investors. Final thought? I mean, good job by you on that reporting, Katie. Thank you. It was a team effort. And with Emily, too, right? It was me, Emily Graffeo, and Todd Gillespie. I think this is very bullish ETFs. Go along with the Triple Crown. I'm very curious to see now: do other asset managers start looking to that mid to lower tier for interesting issuers out there? I think so. I mean, we've long felt that the asset management industry in 10, 20 years from now will look like the airlines. There'll be three
About Trillions
Money goes where it's treated best. That simple truth is a big reason why more and more money—trillions, in fact—flows into a powerful, low-cost tool that's quietly transformed investing in recent years. Exchange-traded funds, or ETFs, let you invest in everything from the stock market to gold like never before. This biweekly podcast will demystify them—and delight you in the process.