The evolution of exchange-traded funds

In the three decades since their introduction, exchange-traded funds (ETFs) have become one of the “go to” investment vehicles for many institutions, financial professionals, and individuals alike. Originally created in response to the rising popularity of passive index investing strategies, ETFs were designed to offer a less costly, more liquid and simpler alternative to mutual funds for investors seeking to closely track a particular index’s performance.
The seed of that idea has blossomed into over 3,000 ETFs in the U.S. today covering almost every aspect of the market—from stocks and bonds, to specific sectors, foreign exchanges, and even bitcoin and digital assets.
Actively managed ETFs are another potential growth area. Assets in actively managed ETFs in the global market grew 37% in 2023. 1While most ETF assets still reside in passive ETFs, the growing adoption of actively managed strategies reinforces that investors value the transparency, tax efficiency, and liquidity of ETFs.
Bottom line: Even though ETFs have come a long way already, their best days may still be ahead. Among U.S. asset managers, 74% believe ETFs are a large opportunity. 2Meanwhile, ETFs ranked third among the top 10 investment products to grow in popularity with U.S. households since 2020. 3We think the future could be bright for ETFs.