ETF Edge - Retail complexity versus institutional simplicity 2/23/26

Episode Date: February 23, 2026

Retail traders are diving deeper into complex products, trying to push the return envelope. At the same time, institutional money is moving more toward straightforward strategies. Find out what this dichotomy could indicate about the future of the markets.   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. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you're 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 your host, Dominic Chu. Now, amid the market volatility as of late, retail investors are diving ever more into complex trade. products, but the pros, on the other hand, are trying to keep it simple from a relative standpoint. So who's taking the right tack on this? If there is one, here's my conversation with Mike Aiken's, the founding partner of ETF Action, alongside Aga Kuplinska, the senior vice president of product development over at Tidal Financial Group. I want to start Mike with you on this interesting storyline because it's one that I think captures a little bit of my attention

and just thematically about where the ETF business is going. And that is to say that there is this divide happening between those ETFs that people view as more traditional and straightforward and many of the actively managed ones that are maybe income or defined outcome oriented that have become much more complicated in how they generate their particular performance and who's actually investing where. So take us through the research that you guys have done over at ETF action with regard to that institutional retail trade and who's gravitating towards what types of products. Yeah, so it's a really interesting, right?

We've almost got 5,000 ETFs in the market. And over the last several years, we've seen a lot more actively managed strategies as well as what I would consider non-traditional strategies, whether that be synthetic income or buffer strategies or the growth of single stock ETFs, whether the covered calls or leverage inverse. I think to set the stage,

you have to understand that pretty steadily over the last, you know, five years, the ETF market, ownership market. So right now is $14 trillion in ATFs. About 60% of that can be tied back to quarterly 13F filings, which are tied to institutions, whether they're independent RIAs or large broker dealers like Morgan Stanley, Goldman Sachs, whatever it may be. And what we've seen is, you know, if you look at the big box categories like equity, fixed income, specifically if you look at the big large, passively managed strategies or broad-based strategies in those categories,

It tends to be 60 to 70% institutional ownership. But as we look at that non-traditional category and watch it grow over the last three years, you know, there's $170 billion in synthetic income ETFs, almost $100 billion in buffer ETFs. That number is significantly lower for most categories. So synthetic income, as an example, about 30 to 35% can be tied back to these 13F filings. But there are caveats. Buffer ETFs, which are more about downside. protection, you know, reducing some of your upside capture, but in return, providing a buffer to the

downside, those tend to be very heavily owned by the investment advisors that are using them for their client base. All right. So with that in mind, Aga, it's interesting because over at Tidal Financial, your firm has become a launching kind of mechanism for many of the ETFs that are being brought to market. Many of the managers people do know, and some of the emerging ones out there as well. What do you attribute some of these trends to Aga? I'm wondering, and what exactly are you seeing from your side over a title with regard to just how much these types of products are resonating with either their predominantly retail base or their predominantly institutional base? So taking a quick step back. So passive ETFs remain the largest portion

of invested assets, but active strategies continue to dominate new issuance. For example, in the past couple of years, almost 80% of new product launches were all active ETFs. And derivative-based strategies, like options overlays, income strategies, generating income through different options strategies are one of the biggest product development trends right now that we see are titled also in the marketplace.

New product launches exploded in the past in the past couple of years. And issuers in partnership with titles accounted for almost half of that. We currently run one of the largest derivative force management programs in the US based on a number of products that we trade and monitor, which basically puts us at the center of the strengths. And what we are seeing is that the market is going through overlay everything phase right now, where issuers can take almost any underlying and layer on option strategy.

for income or hedging. And this includes enhancing income on investments traditionally known for generating income, for dividends, for example, as well as spaces where income was not associated with in the past. And income in particular remains the number one, it has been the number one selling point and will remain going into the future because the demand for yield, especially among retail investors just does not go away. And during uncertain market conditions, that added benefit of income seems to resonate well with investors. You know, Mike, there was a point in time, you know, maybe it was 10 years ago, maybe even longer than that at this point, maybe 15, 20,

30 years ago. When, if you looked at the investing landscape, you kind of made this, I guess, maybe unofficial link in your mind, psychologically as an investor, that it was the large institutions, They were the ones that got into more complicated, kind of structured-type strategies that typically had sometimes higher fees, but also the possibility for higher returns, but you had to be a little bit more learned to be able to kind of understand how those processes worked. And conversely, you wanted to go towards more passively index-oriented strategies if you wanted to just find a fire and forget that had low cost.

That was more geared towards retail. What exactly then do you attribute the change in shift or thinking? about these types of products towards, that we now see most of the larger, big money, real money type investors turning towards some of those more simplistic, lower-cost products, yet it's the retail investors that are gearing more towards some of these more complicated features.

Well, I think I would set it up just a little bit differently in that part of it's just the access vehicle of the ETF changing that dynamic. So as, you know, the ETF rule really opened up floodgates for bringing more derivative type strategies to market. However, I think one of the reasons you're not seeing the adoption rate quite as high with the institutional users is because to a large degree they were already doing this, right? I mean, writing covered calls is not a new concept.

It's not a new strategy. But a lot of your investment advisors are doing that on their on for their clients based on that specific client's needs. But now we're seeing, you know, with the TF wrapper, a much more efficient way to do it in some respects, especially with synthetic income. However, I would note that it's gotten really kind of the Wild West in terms of what you can do.

I mean, if you look at indicated yields or distribution rates for the synthetic income market, you have some that are trading, you know, returning almost 100%, which is really just going to be an erosion of NAV and others that are much more targeted in specific ranges, whether it's 5 to 8% or 8 to 12%. So there's a lot of edgy,

that has to be done before buying any of these products because they're all managed a little bit different. But big picture, I don't think, you know, it's that institutions aren't using it. They have a little bit different ability to access it. So if you're a self-directed investor and you like that idea of being able to generate income off of a more volatile strategy, as well as capture some of the upside, there's a lot of, you know, QQQ-type strategies that have covered calls on it now that have done very well and have returned a nice solution for the investor. But a lot of that institutional money had already kind of, they've been doing this, you know, for a while. So it's the ETF wrappers making it so that those self-directed investors can access the same vehicle. Aga, you know, it's interesting

that Mike mentioned kind of this knowledge gap aspect when it comes to kind of understanding how some of these funds and strategies work. From your standpoint over a title, what exactly is it going to take in order for some of those knowledge gaps to kind of maybe shrink a little bit, not just among the investment advisors that people turn towards for their advice and managing their portfolios, but also some of the retail investors that invest in these vehicles directly. What exactly do they have to know about these types of products, some of the ones that have more exotic elements to them, as opposed to buying a straight-up S&P 500 or sector-based ETF?

That's a very good question. takeaway for investors is that there's no free lunch in options income. The more income a strategy produces, the more upside you typically give up. Yield, it's a product design choice. And there are a lot of different ways to generate that income for option strategies for investors. There are very successful ETF brands out there that generate max income. And there are very successful ETF brands out there that generating a very conservative levels of income, it all depends, you know, who the product has been designed for. As derivative income in particular or hedge type ETFs get more complex, having a very experienced platform behind the issuers really matters. All the regulatory operational

trading infrastructure, including, you know, highly trained trading desk and sort of product development expertise to package sophisticated option strategy into the ETF wrapper and then be able to articulate, you know, what the strategy does and what it does not do will be critical. All right, Aga, to follow up on that, because the title financial platform has become a place where many products are being brought to market, from sometimes from investment managers that we know or are familiar with or from some of the other managers out there who are just kind of getting going with perhaps interesting strategies to be brought to market that just haven't gotten the traction yet. What exactly are you seeing with regard to the fund universe that you either advise

or sub, you know, have sub-advisors for? What types of products do you think are gaining the most traction are bringing brought to market at the fastest pace? What types of products, I guess, in my mind, are being, at least deployed on the title platform more readily than others right now? Because of our experience in derivative trading, our bread and butter are a truly derivative-based products, so anything with options, futures and swaps. So on our platform, we launch a lot of income products as well as a lot of leverage products. And generally speaking, we also have also had a lot of successes with thematics. I believe we are able to equip our sponsors with whatever it is that they need in order to bring timely thematic ideas into the marketplace.

So I would say derivative-based products as well as thematics. All right, Mike, what exactly in your mind have you seen in terms of those thematics that are developing for the broader ETF industry overall? What can we expect to see with regard to the, I guess, next leg of ETAF? launches, the types of demand that we're seeing from investors and traders and investment advisors, where exactly are we going to see that kind of next move? We saw a boom in crypto for a time being. As of late, it's been precious metals oriented given the price surges and volatility we've seen in places like gold and silver. What exactly is going to be that next leg for the ETF market? Where is that demand coming from? So I think one of the great things about the ETF is it's just a

wrapper, right? So you're ultimately getting access to the underlying strategy or generally speaking, the underlying stocks or bonds. So I think that'll be driven by the market. The ETF wrapper is just more efficient for a lot of things, not everything. And I always say I'm an ETF first type of guy, but I'm not an ETF only. And I do think we're seeing examples where certain things like privates and whatnot that are getting thrown into ETFs need to be questioned a little bit. But broadly speaking, I think it's going to be driven by what's going on in the world, right? So we're seeing a rotation of assets year to date, really in the thematic space, kind of from that AI theme to more real asset type thematics, whether it's the infrastructure, whether

it's industrial reshoring and things of that nature. So I think the ability to get an ETF to market has become very mainstream. It's super easy if you have the right provider. or partner like with title here or another firm to get a product to market. So I think the investor is going to drive that next theme based on the market. Now, of course, there is always that a little bit of performance chasing that goes on. And sometimes by time these themes get to market, the trade is played out. But there's no reason to think within the ETF space that we're going to run out of innovation,

because as macroeconomic landscape changes, as performance leaders and laggards change, I think the market will adapt. And I think the important thing to remember is, if you're investing in a large S&P 500 or a manager who has a mandate of owning large cap securities, but with a lower tracking error, that's one thing. If you're investing in these strategies that are niche,

that have a narrow focus, the shift goes from the manager, Your success goes from relying on the manager to your ability to use the product at the right time. And I think that's a big component to understand. Just because there's a strategy for AI or there's a strategy for cloud competing or you name it, whatever it may be, those are tactical strategies, tools to give you an efficient way to allocate to that market. But the onus is on you to decide whether it's a good time to invest in. Now, Mike, I'd like to just follow up with a question about what you think is going to be the most intriguing

aspect of the ETF market for the balance of 2026, what do you think is going to get you to pay attention to what's developing in terms of not just product, but some of the investment themes and macroeconomic stories that are going to weave their way through 2026? Yeah, that's a great question. I do think you're seeing the active passive at a high level with the big, big firms getting now finally embracing the ETF market. We've seen 250 billion in year-to-date flows. to destroy last year's record, which destroyed the years before's record. But part of that is we're getting a big tailwind from active managers really selling their active

ETF. So year to date, $100 billion have flown into big active strategies. Looking underneath the surface, I think we're going to see two trends this year. I think we're going to see a consolidation, I think, of the non-traditional. So I think you're going to start seeing, you know, everybody launched these different strategies for covered calls, everybody launched these different strategies for buffers. But I think we're going to start seeing a consolidation to those strategies that have performed the best and that have gained a market share. So I think there's going to be a consolidation shift. I think they'll continue to

grow and get adoption from investors. But I think that we're going to start seeing some serious winners and losers within that because we had a little bit of everybody launched something and you can't have that many strategies tracking the same spot. Within the themes and the sectors, The evidence is showing right now, whether it's a rotation from growth to value or whether it's a rotation from unprofitable tech into more natural resources or infrastructure-type strategies, that's starting to get some legs. And I think that will continue to the extent that the market continues to play out where people start questioning the AI trade a little bit, start trading the duration risk on high-growth names. So those are the areas I'm watching the most closely. All right, Aga, for you, from a product development standpoint, because of Title's presence across many different types of ETF strategies

and many different types of investment managers who kind of bring these products to market, what exactly has you the most intrigued or excited about the new types of products that you could see coming down the pike for the rest of 2026? Another very good question. only because Mike mentioned AI, so we can create along only AI type portfolios, providing investors access to the AI theme and sub themes,

but also AI is basically finding its way into investment process. So we have seen already on our platform launches or findings of products that are AI enhanced or AI manager. So this area is very exciting, as we are only scratching the surface. Institutional interest in digital assets, it's still tactical, in my opinion, based on the flows. And as the adoption sort of increases or widely spreads,

we should, that should also fuel product innovation around digital assets as new tokens gets approved. for to be held within the ETF wrapper. And so there will be, I expect a lot of innovation taking place within digital assets in particular. And then, you know, volatility based strategies every time volatility spikes in the marketplace, that triggers product innovation.

That also changes how the flows are going into equities versus other strategies. And so typically there's more product types that are being launched around, you know, market volatility and stuff like that. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Aga Kuplinska, Senior Vice President of Product Development at Title Financial Group, continues with us now. Aga, thanks for sticking with us for the podcast here. I'd like to kind of go into a couple of points that you made during the ETF show this week with regard to the use of derivatives and ETF wrappers, first of all.

And I want to explore a little bit this notion that for many people out there, they still kind of have this in the back of their mind thought of, I think it was maybe Warren Buffett, who called derivatives weapons of mass destruction, right, in financial markets. we've now come a long way from WMD in financial markets with regard to things like futures and options and other kind of parts of that derivative universe. From your standpoint over title financial, you mentioned that title does a lot of work with regard to ETF managers that are bringing product to market

that have derivative-based strategies that are then in an ETF wrapper. What exactly is it like for title to kind of have to manage around those types? types of products on its platform. Thank you, Dom. Pleasure to be here again. Anything can be a weapon of mass destruction, if not used, you know, as intended or properly. When comes to derivatives and derivative-based strategies, the simple cover call strategy have been around for many, many years. You take a basket or an index and you sell call options to generate income, for example.

for example, white space is much harder to find because these type of strategies probably been done on everything out there. Then you can create the underlying synthetically an overlay with options. That was the next sort of phase of innovation in the space. And I think the next wave is more about outcome-oriented strategies that are built around maybe not necessarily a maximum income,

maximum income, you know, opportunity, but income stability and risk control. So issuers that we are working with are moving towards, sort of strategies that define outcome, you can use derivatives in particular options to target specific upside or specific downside income, no income leverage. Basically the toolkit, the derivatives toolkit in the EGF wrapper is getting very,

very sophisticated to support a more complex strategies than simple call writing. And investors, especially during volatile markets, are looking for alternative ways to either generate income or to have that more predictable return profile than it would have been if they just invested in this, in the underlying on its own. Now, from a risk management perspective, because that's something that you pay attention to as well, just how. how much do you have to kind of scrutinize some of these types of strategies and how they perform in certain types of markets?

These products, as you mentioned, have been around for quite some time, but it's only been in probably like the last five or seven years that we've seen an explosion in the number of issuers that are bringing these types of products to market. So they haven't really been tested, if you want to call it that, in times of kind of more severe financial stress. What exactly are you doing as a product manager who kind of helps these ETFs come to market in terms of understanding what the risks are in some of these strategies, even though they may, they may, you know, on the surface be quote unquote hedged or quote unquote risk managed. What does that actually mean? And how exactly do you have to kind of yourself risk manage around what the possible outcomes that these products could generate in stressed markets? options-based strategies, for example, are incredibly difficult to back-test.

There are, however, all subject to Rule 18 of 4, which requires us to monitor these funds on daily basis, calculate value or risk on daily basis. Title runs the largest derivative risk management program from the number of funds that we support perspective. So there is this, a lot of monitoring that goes into it and a lot of risk awareness that goes into it, depending on what the strategy is looking to deliver. Okay. There was another point that you brought up during the ETF Ed show this week that I want to get into a little bit more because it really caught me, you know, not by surprise, but it

peaked my interest, it caught my attention. It was this notion that when I asked you about what you thought was going to be an interesting development for this coming year with regard to ETF product launches. You said it was in some of the products that are being brought to market with ETF wrappers that are either being AI enhanced with regard to their kind of investment strategies or outright AI generated. Now, that's an interesting move. We know AI is going to be part of financial markets, but are people actually already using artificial intelligence as a tool to help manage money that is a being put into an ETF wrapper?

Yes, they are. We have products in our platforms that are AI managed, and we have seen a lot of new filings that were submitted to the SEC for AI enhanced and AI management strategies. AI fits this space really, really well, if you think about it from the advantage that you can sort of contribute to any sort of asset management firm from just research and analysis perspective.

It can be used to varying degrees. It can be used to, you know, develop, observe trends, analyze a vast, vast majority of data. So there's no surprise that issuers are looking for AI tools or they are building their own tools, AI tools, you know, to have advantage in the investment process. And how, well, and how, Aga, then, if you are helping to kind of bring these products to market and helping to develop these with some of the investment managers that you work with,

what exactly then do you have to do differently from a management perspective with some of these funds that are more actively using artificial intelligence for their investment process? Starting with disclosures, the regulators were very clear. that a mere algorithm is not AI. It's basically an algorithm that can improve upon itself can be called AI. So disclosing to investors, what the investment process is and how the stocks are being selected is step one. Then, you know, from like the ecosystem perspective, I mean, for as long as the output, the selections

are still liquid and can be managed within the ETF report. It doesn't really change, you know. how the stocks are trading, how the portfolio is being managed, is the decision-making aspects of it, as well as disclosures to investors that are slightly different and will need to be handled with cautions to make sure that the portfolio is still managed within a regulatory framework and also investors understand who makes, you know,

who calls the shots when comes to selecting investment for a particular portfolio. But AI tools can be used to design, not just stock selections, but they can also be used to design very complex, you know, trading strategies that, you know, would take a human, you know, human brain a lot more time than AI, a well-built AI tool that can improve upon itself can do in a matter of seconds. Now, Aga, I've got one final question from a personal interest standpoint. Just how much have you personally, forget about your role as a senior product, you know, VP and bringing these products to market, how much have you kind of delved into the use of AI?

How much do you use artificial intelligence kind of in your daily personal process, whether it be for professional purposes or for maybe streamlining your own personal life? Every single day, every single hour. We have been using a title, particular we have been very vocal about learning about all the different AI tools that are out there as well as utilizing them so that your own AI tool become better and better and better over time so we are using myself or I'm using AI tools pretty much every single hour of the day Wow okay interesting one else yeah I think it's it's a trend for sure that's been developing not just in this financial services industry but

elsewhere as well. Aga Kublinska over at Title Financial, thank you so much for the time. We appreciate it. Thank you, John. Pleasure to be here. All right, that does it for the ETF Edge podcast. Thanks for listening. Join us again next week or just head over to etfedge.c.cnbc.com. Over the last few decades, technology has transformed our world in amazing ways. Through it all, Invesco QQQQEF has connected investors to the forefront of innovation. Access the future today with Investco QQQ. Let's rethink possibility. There are risks when investing in ETFs, including possible loss of money. ETF risks are similar to those of stocks. Investments in the tech sector are subject to greater risk and more volatility than more diversified investments.

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