Table of Contents Expand Table of Contents What Is an Exchange-Traded Fund? Where ETFs Are Headed The Future of Asset Management ETF FAQs The Bottom Line By Irene Huhulea Full Bio Irene Huhulea is an editor and an expert on financial advisor practice management. Irene has over five years of experience writing about personal finance, technology, and careers. She received her bachelor's degree from New York University with a major in English and American literature and her PhD from The University of Manchester in English and American studies. Learn about our editorial policies Updated January 16, 2025 Reviewed by Michael J Boyle Reviewed by Michael J Boyle Full Bio Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics. Learn about our Financial Review Board Fact checked by Ryan Eichler Fact checked by Ryan Eichler Full Bio Ryan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing. Learn about our editorial policies Part of the Series Advanced Guide to ETFs The Future of ETFs: An Advanced Investor's Guide CURRENT ARTICLE Evaluating Your Portfolio How to Calculate the Value of an ETF Building an All-ETF Portfolio How to Benchmark Your ETF Investments 10 ETF Concerns That Investors Shouldn’t Overlook 3 Types of Indexing for ETF Success A Guide to ETF Liquidation How Synthetic ETFs Are Different Than Physical ETFs Why 3x ETFs Are Riskier Than You Might Think Exchange-Traded Funds (ETFs) vs. Closed-End Funds: What's the Difference? Tracking Returns ETF Tracking Errors: Protect Your Returns Comparing ETF Gross vs. Net Expense Ratios Dissecting Leveraged ETF Returns: Explanation, Components, and Examples How Do ETF Dividends Work? How to Reinvest Dividends from ETFs The Impact of Rising Mortgage Rates on ETFs The True Risks Behind Preferred Stock ETFs Using ETFs for Small Periodic Investments Advanced Strategies How To Use a VIX ETF in Your Portfolio Are Triple Leveraged ETFs a Good Idea? A Guide for Buying ETFs on Margin Is Hedging With ETF Indexes a Relevant Strategy? Hedging With ETFs: A Cost-Effective Alternative Are ETFs Considered Derivatives? Are Stop-Loss Orders and ETFs a Good Idea? Can You Short Sell ETFs? Day Trading With Leveraged ETFs How Does an ETF Pay Dividends From Its Stocks? ETC vs. ETF: What's the Difference? ETF Liquidity: What It Is and Why It Matters ETFs vs. Asset Types ETF vs. ETN: What's the Difference? Should You Hold ETFs or Mutual Funds in Your IRA? Hedge Against Exchange Rate Risk with Currency ETFs Active vs. Passive ETF Investing: What's the Difference? Can I Buy ETFs for My Roth IRA? How ETF Arbitrage Works Taxes and Regulations A Complete Guide to Tax-Loss Harvesting With ETFs How ETF Dividends Are Taxed The ETF Rule: What It Is and Why It Matters Close Exchange-traded funds (ETFs) can be a simple, cost-effective approach to investing that provides diversification with a single, convenient, and easy purchase. As of September 2023, the U.S. ETF industry had grown to $7.3 trillion from $4.3 trillion in pre-pandemic years, aided by the 2019 rule passed by the SEC to expand competition in the marketplace. This is good news for investors looking to enhance their ETF portfolios and suggests further growth in assets as well as the number of ETFs. But where exactly is the ETF market headed in the future, and what are the trends investors should watch out for? Key Takeaways An ETF is a security that invests its pooled funds in securities to track a benchmark, such as an index or sector. ETFs offer diversification and are a cost-effective approach to investing. In 2023, the U.S. domestic ETF market was about $7.3 trillion. By the end of August 2023, there were 9,904 ETFs worldwide. Trends indicate continued, future growth in investor interest in ETFs, new ETF launches, and capital inflows. What Is an Exchange-Traded Fund? An exchange-traded fund (ETF) is an investment vehicle that invests its funds in the same securities found in a particular benchmark index, sector, or other assets. By doing so, the ETF aims to track the return of that benchmark. Features ETFs are like mutual funds in that they provide an investor with broad exposure to a variety of assets. For example, an investor may invest in a single technology ETF to gain exposure to many technology stocks. ETFs are passive investments when they track a benchmark. This means minimum transaction expenses and greater affordability than other investment funds, such as certain mutual funds and actively managed ETFs. In addition, they typically have low expense ratios. Popular ETFs are liquid securities, which makes them easy to convert to cash and diminishes the hidden cost of a wide bid-ask spread. ETFs trade intraday like stocks on an exchange. Investors can buy and sell them at any time during exchange hours. That's different from mutual funds, which have specific rules and requirements regarding selling and are priced only at the end of the trading day. Fast Fact Various large, reputable financial institutions offer ETFs. Some of the most well-known are Vanguard, Schwab, Invesco, State Street Global Advisors, and BlackRock. Some popular ETF brands and products include iShares, ProShares, QQQ, and SPDR (which tracks the S&P 500 Index). Where ETFs Are Headed Since their introduction in 1993, ETFs have captured the interest and assets of investors. Retail and institutional investors have embraced the concept that asset allocation can result in better returns than those offered by individual security purchases. According to asset manager BlackRock, ETF growth in 2023 reflects investment trends that support index investments as a primary strategy. Index investing also continues to gain popularity as investors realize that the higher costs associated with individual stock investing erode long-term returns. Additionally, as investors become active traders of their portfolios and wary of unnecessary advisory fees, low-cost index products such as stock and bond EFTs will gain additional traction. New types of ETFs have also sparked intense interest in ETF investing. For example, on Jan. 11, 2024, spot bitcoin ETFs started trading in the U.S., having been approved by the U.S. Securities and Exchange Commission. On May 23, 2024, the SEC approved the applications from the YSE, CBOE, and Nasdaq to list spot ether ETFs. This is generally considered to be a first step towards listing the actual spot ETFs on US exchanges. The actual issuers of spot ether ETFs now have to seek approval to be able to list them on the exchanges. Growth in AUM and ETF Types A PwC survey of global ETF executives indicates that global ETF assets under management (AUM) will reach a minimum of $18 trillion by 2026, and more likely, $20 trillion. It bases this outlook on the remarkable inflows of funds to ETFs, the new players entering the market, and the innovative products both in use and envisioned. The survey points to crypto ETFs, thematic ETFs, commodity ETFs, and active ETFs as products that may satisfy the growing investor demand for new investment opportunities. Of the 543 new ETFs that launched in 2023, Morningstar found that approximately 75% of them were actively managed. The Future of Asset Management Asset managers, such as those that offer ETFs, have the opportunity to improve the way they do business, the quality of products offered to investors, and their financial results with emerging technology innovations. AI and Risk Management A 2023 report from EY (Ernst & Young Global Limited) suggests that financial firms may face hurdles without integrating more digitization and the use of artificial intelligence (AI). AI technology can help fund managers improve the way they conduct their operations and interact with clients. Additionally, asset managers who focus on risk management techniques combined with a high level of transparency will profit most. Are ETFs Long-Term or Short-Term Investments? ETFs can be long-term or short-term investments depending on the investor's time horizon and investment style. Those looking to invest and hold long-term may choose an ETF that invests primarily in blue-chip firms. Short-term investors may choose an ETF that invests in new startups that have high growth potential for the near future. Or they may prefer to trade ETFs with some frequency to actively manage their portfolios. How Many ETFs Are There Globally? At the end of August 2023, there were 9,904 ETFs globally. This is an increase from 729 in 2006 and 6,952 in 2019. What Are Some Risks Associated With ETFs? Like other investments, ETFs have market risk since their success relies on the gains of their underlying assets. ETFs may experience a shutdown when the fund is liquidated. Investors will lose their investment vehicle but will be paid in cash. The Bottom Line ETFs have experienced significant growth since their introduction in 1993. They have proven an attractive option for investors looking to diversify their portfolios easily and at low cost, without increasing the time and effort they spend managing their assets. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. ETFGI, LLP. "ETFGI Reports ETFs Industry in the United States Gathered Net Inflows of US$15.37 Billion US in August." U.S. Securities and Exchange Commission. "Mutual Funds and Exchange-Traded Funds (ETFs) – A Guide for Investors." BlackRock. "4 Trends Driving ETF Growth." U.S. Securities and Exchange Commission. "Statement on the Approval of Spot Bitcoin Exchange-Traded Products." reuters.com. "US SEC approves exchange application to list spot ether ETFs." PwC. "ETFs 2026: The Next Big Leap." VettaFi ETF Trends. "ETF Industry Shatters Launch Record in 2023." EY. "Are You Reframing the Future of Asset Management or Is it Reframing You?" ETFGI, LLP. "ETFGI Reports the Global ETFs Industry Gathered Net Inflows of US$64.64 Billion During August." Fidelity Investments. "What to Consider Before Investing in an ETF." Vanguard. "History of ETFs." Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Part of the Series Advanced Guide to ETFs The Future of ETFs: An Advanced Investor's Guide CURRENT ARTICLE Evaluating Your Portfolio How to Calculate the Value of an ETF Building an All-ETF Portfolio How to Benchmark Your ETF Investments 10 ETF Concerns That Investors Shouldn’t Overlook 3 Types of Indexing for ETF Success A Guide to ETF Liquidation How Synthetic ETFs Are Different Than Physical ETFs Why 3x ETFs Are Riskier Than You Might Think Exchange-Traded Funds (ETFs) vs. Closed-End Funds: What's the Difference? Tracking Returns ETF Tracking Errors: Protect Your Returns Comparing ETF Gross vs. Net Expense Ratios Dissecting Leveraged ETF Returns: Explanation, Components, and Examples How Do ETF Dividends Work? How to Reinvest Dividends from ETFs The Impact of Rising Mortgage Rates on ETFs The True Risks Behind Preferred Stock ETFs Using ETFs for Small Periodic Investments Advanced Strategies How To Use a VIX ETF in Your Portfolio Are Triple Leveraged ETFs a Good Idea? A Guide for Buying ETFs on Margin Is Hedging With ETF Indexes a Relevant Strategy? Hedging With ETFs: A Cost-Effective Alternative Are ETFs Considered Derivatives? Are Stop-Loss Orders and ETFs a Good Idea? Can You Short Sell ETFs? Day Trading With Leveraged ETFs How Does an ETF Pay Dividends From Its Stocks? ETC vs. ETF: What's the Difference? ETF Liquidity: What It Is and Why It Matters ETFs vs. Asset Types ETF vs. ETN: What's the Difference? Should You Hold ETFs or Mutual Funds in Your IRA? Hedge Against Exchange Rate Risk with Currency ETFs Active vs. Passive ETF Investing: What's the Difference? Can I Buy ETFs for My Roth IRA? How ETF Arbitrage Works Taxes and Regulations A Complete Guide to Tax-Loss Harvesting With ETFs How ETF Dividends Are Taxed The ETF Rule: What It Is and Why It Matters Read more Investing ETFs Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.