ETF Edge - 1000 more ETFs than stocks? 6/1/26

Episode Date: June 1, 2026

The statistic in the title is impressive. But at what point does too much product cause more confusion than its worth? Or are more ways to slice the pie, as they say, still a better way to eat? We dig in.         Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things exchanged, traded funds, you are in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm Sima Modi in for Dom Choo. Like the markets themselves, the pace of the ETF product innovation has accelerated to new highs.

how many ETFs is too many or does it not matter? Here's my conversation with Gavin Fillmore, CEO of Title Financial Group, and Tim Obronowitz, Chief Investment Strategist at Innovator from Goldman Sachs Asset Management. That does it for us on ETF Edge, the podcast. Thank you so much for listening. Join us again next week or head to ETFedge.c.com. Gavin, I'll start with you. Should it be a surprise that the ETF universe is expanding at such a rapid pace?

Not at all. I think quite the contrary. This has been happening for decades now. It's a 30-year-old industry. And quite frankly, launches are just being rewarded, right? There's more and more innovation coming to market. And as long as the asset flows continue, why would the issuers stop? And I think it's actually just the beginning or near the beginning of that. Tim, do you agree? Is the expansion justified? Well, Seema, I think if you look at what investors and the financial advisors that we're working with are deals, with they're dealing with complex challenges things like traditional asset allocation with the 6040 portfolio certain portfolio hedges not working income solutions that they need more juice from so if you look at a lot of the ideas that are coming to market right now they're built to help solve a lot of

these solutions you know we focus on the risk management side of things you look at 2022 uh in a year where you had stocks down 18 19 percent bonds were also down 13 so putting different strategies your portfolio, they can provide objective risk management. These are issues that advisors need help with. And I think you're seeing a lot of the product development in the ETF industry address a lot of those challenges. Tim just said that the ETF universe is in fact solving a problem that some investors are facing, finding the right way to get exposure. Is a lot of this being driven by some of the IPOs we're seeing like a SpaceX? Well, I mean, IPOs are expansion of that or an extension of that. So now people are looking for more and more targeted exposures. Is Tim,

mentioned and recently right you see the advent of actually taking private shares of companies like SpaceX having them in an ETF so for example there's a space ETF we're involved in NASA and ASA and that has exposure to SpaceX so leading up to the IPO of course there's excitement especially from the retail market to be able to access a product like that and gain that private exposure alongside the public and inflows have been increasing and there's different ETFs that have different strategies, whether it's companies that service the space industry, those that have exposure to the private market where there are some very highly valued names,

including SpaceX. So how do you position yourself? Well, so at Title, it's a little unique, right? We're involved in over 10% of all launches. So we get to see the ETF market from almost every vantage point. I think issuers all play a different role. Tim mentioned that some are very specifically trying to create products for risk hedging, like Innovator, whereas others are really designed to do.

product more for the retail market and for the general market at large. So everybody's creating and trying to find white space so that they can bring something new and novel to the market, which I think great for the end consumer. Yeah, Tim, you noted that the active management category has grown about 65% year over year. Is that buying coming from individuals or bigger institutions? It's really across the board, Steve. I mean, we're seeing it, you know, in our business with the focus on defined outcome ETS, which are a huge percentage of the actively managed inflows. That tends to be more financial advisor and institution driven, but there is retail interest there as well. I think it all comes down to the type of challenge that you want to solve for.

And within that active category, what I think is so interesting is it's not active in the traditional sense where there's a lot of stock picking going on, trying to provide outperformance from stock picking, it's more solution oriented. And again, trying to solve specific issues and specific problems for investors. I'll give you one example here. You look at the breakdown and the correlations of different asset classes rising. Dual directional ETFs have been one spot in the market that advisors have been gravitating towards in a big way to help solve that issue. Dual directional ATFs give you the ability to make money when the market's going up. And all also when it's going down.

So it's providing that correlation, that negative correlation, but not asset class to asset class. It's using equities and derivatives to get that exposure and to provide objective built-in risk management and the potential for built-in alpha when the market goes down.

Tim mentioned risk management. What is the best way to protect yourself as you look for these type of ETFs to invest? I guess do your research, obviously. Yeah, research, education. It's the classic stuff. But as the market grows and it becomes more innovative and you have more product, it becomes increasingly important, right?

So not like a decade ago, it's just passive ETFs. Now active is actually really dominating flow, so you obviously should appreciate those nuances. But then you go beyond that and you think about more esoteric strategies, things with leverage, things that are using options and derivatives. The amount of education that it requires is going up. I think everybody's doing a really good job of getting that information to the market. But it's just the beginning and we have to all be good stewards. So walk us through that synergy that's happening between the options market and the ETF universe.

How did that happen? I mean, is that risky as well? Because it does take a certain level of sophistication to understand the options market. Yeah, so education is important to the end consumer. The other risk that people do talk about is the market, the capital market structure actually built and designed for all these products. What we see and what we've seen, especially over the last five years with derivatives, is the market is doing an exceptional job of keeping up.

So if you think about the market-making community and other players like exchanges that are supporting the product, they've had to make investments alongside the growth of the industry. They've done that really, really well. These products continue to behave exactly as design, and we've been tested with market dynamics that are obviously unique going back to COVID, but in the beginning of this year as well.

And ETFs just continue to power through and really support all of that innovation and all of that product. Tim, what do you make of the rise and interest in these more complex ETF products? Well, Seba, I would say that you're really seeing the ETF wrapper helps simplify a lot of these structures for investors.

You know, take the dual-directional ETFs that we just talked about. If an investor wanted to construct that on their own, they'd have to know the ins and outs of different options and how to put these different trades together. In the convenience of the ETF wrapper, you can get into something like DDFZ, the 15% dual directional ETF, and you can know exactly what the payoff will look like without having to be an options expert. You can know that if the market sells off over the next year, 0 to minus 15%,

you are going to make 0 to plus 15%. And then on the flip side, you have an upside cap. So if the market appreciates, you know, 0 to 10, 10 and a half percent, you're going to be up one for one with that. So you can have that payoff structure that you can, as an individual investor, as a financial advisor, as an institution, you can wrap your head around very simply without having to know and be an expert on options trading or how do we structure these to get that exact payoff. You have the expertise of a firm like innovator from Goldman Sachs asset management doing the legwork for you, and you can understand that payoff. So I think the ETF wrapper, this technology that has driven so much interest over the last decade, is really helping solve that. Fascinating times that we're in.

And maybe we can just step back for a moment, Gavin, because record highs for the market, a surge in IPOs, anthropic filing confidentially today. But the bond market not getting as much intention, perhaps due to the inflation picture. What do you make of all of it? Well, I think the market dynamics are constantly changing. And the speed and rate of those changes has probably been incredibly. over the last decade and over the last few years. The ETF market, what's nice is with more product, it has tools that are very specifically designed for certain exposures.

So if you want to hedge against inflation, there's product design for that. If you want broad market exposure on the opposite end of the complexity spectrum, there's product for that. There's single debt instruments now. So again, I go back to this proliferation of product, not actually being a challenge, but something that's really, really good to the end consumer, especially the more retail direct-to-consumer market

because they're gaining access to products that they've never had access to before. They can then take more nuanced positioning within their portfolio and really prepare for the outlook that they're expecting. It might be right. They might be wrong, but having that customization is pretty critical. That's been a big part of it. And then Tim, you know, a big catalyst behind this whole rally has been semiconductors and even today, Nvidia sharply higher,

along with software companies, which have come back, I would point out service now is up about 9% and it was up 40% in the month of May. Do you have a view on what we're seeing overall in tech? Well, I think in tech in a whole, what's been interesting, if you look at this last earnings cycle, it's incredibly successful across the board,

across really every sector, tech in particular. But what's interesting, even with the run that we've seen in tech this year, you've actually seen valuations come down because earnings have been. been so strong. And we continue to see this AI trade as a place where demand outweigh supply. That's something we want to align portfolios too. We think the U.S. is still positioned for success, but we also see that the next big wave and really where we think a lot of the big money can

be made on the AI trade is within emerging markets. Okay. And you look at the run that we've seen with EM, even this year, you still have the valuation gap between emerging markets in the U.S. at multi-decade highs. So the valuation, the starting point is strong. And if you look at the composition of the emerging market index in ETF, it's heavily weighted to South Korea, Taiwan. These are major players in the AI trade in the AI space where valuations really haven't gone up as much as they have in the U.S. and still a lot of runway in our view to provide outsized gains with this AI trade. That's interesting because even the big games we've seen in EM, you still think there is opportunities. So Tim is looking at emerging markets, Gavin.

What excites you when you look at the ETF universe and what's next? Well, believe it or not, I think we're not talking enough about the ETF industry enough, which sounds a little crazy because there's a lot of talk, there's this show, there's a lot of chatter, the records just seem to keep being broken. So I'm faced with questions all the time. What inning are we in for this ETF craze, if you will? I say inning two or three that shocks a lot of people, but we just see the innovation continue

and the flows back up that innovation. So you have products like auto callables that I used to work on when I worked at a bank that were structured note only, and now that comes to market. A lot of complexity inside that product, but it's been rewarded. It's been rewarded with over billions of dollars of asset flow.

And now that says to somebody like me that we're just scratching the surface because it means that we can bring almost any exposure to this wrapper, this wrapper always has had its advantages to the end consumer, and that's exciting to me. So I say inning two, three. If somebody wants to say inning five, I might tolerate it. Anything over that, I'm short. Well, we have Tim, you're inning two or three. Tim, what about you? Which inning are we in? Is the market in? I think it's very early stages to Gavin's point, Seema and if you look at even you know this this whole move into derivative based

ETFs outcome ETFs there's a lot there's a lot of runway I mean you know actually innovator was founded because one of our founding partners was sold an indexed annuity an insurance product in a different wrapper and he starts thinking to himself hey we can make this more efficient and more accessible to various investors by bringing this into the convenience of the ETF wrapper so a lot of ETFs have been launched. There's a lot of ETFs out there, but there's still a lot of ideas, a lot of payoffs, a lot of exposures that investors are going to be better off accessing an ETF wrapper than potentially other structures out there. Over the last few decades, technology has

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