Understanding ETF Demand: Insights from Financial Advisors

The Growing ETF Landscape

The exchange-traded fund (ETF) market has exploded in recent years, with an increasing number of funds being introduced daily. According to recent data from Cerulli, a remarkable 733 new ETFs were launched in the first half of 2026 alone, while 145 were closed. Both figures herald a competitive and evolving landscape that could soon set new records.

Among these new offerings, many focus on leveraged, inverse, or single-stock strategies, primarily targeting day traders. With the competition for investor assets heating up, issuers must decide which products merit their resources and support.

Why Funds Get Closed

A recurring theme in the life cycle of ETFs is the challenge of attracting sufficient assets. A significant factor leading to the closure of many funds is the lack of interest from key distribution partners, notably financial advisors. Approximately 69% of issuers report this as a top reason for shutting down a fund, emphasizing the crucial role advisors play in the ETF ecosystem.

What Do Financial Advisors Seek?

With this context, it’s essential to ask: what do financial advisors really want from ETFs? Kevin Lyons, an associate director at Cerulli, noted, “Advisors are building portfolios, not simply buying a new wrapper.” This statement encapsulates the mindset of many advisors who value investment strategies over mere product packaging.

In a survey that included over 2,000 advisors and 25 issuers, findings reveal some interesting trends:

• Almost all advisors, about 90%, employ US core equity ETFs in their strategies.
• Around 83% utilize US core fixed income ETFs.
• International funds are favored by 78% of advisors.
• More specialized strategies, while on the rise, are less commonly adopted, with approximately 35% using derivative-income ETFs and 32% utilizing defined-outcome ETFs.

Bridging the Gap: Advisor and Issuer Perspectives

There seems to be a divergence in how advisors and issuers perceive potential growth areas within the ETF market. An impressive 42% of advisors indicated there is a demand for alternative investment strategies that is currently unmet. Additionally, 31% of advisors expressed a similar sentiment regarding digital assets. In contrast, only 35% of ETF issuers acknowledged unmet demand for alternatives and just 20% noted the same for digital assets.

This disparity highlights a significant opportunity for issuers specifically targeting the evolving needs of advisors who are keen to diversify their investment portfolios. Yet, as Lyons cautions, “This points to interest in expanding the portfolio toolkit, but not to a universal appetite for niche or complex products.”

The Rise of Actively Managed ETFs

The number of actively managed ETFs has surged, particularly noticeable since 2020 when over 300 products were launched. By the following year, the total surpassed 1,000, showcasing a clear trend toward greater adoption of actively managed strategies among investors, according to Morningstar.

This trend reflects a shift in advisor preferences and a growing recognition of the benefits that active management can offer in certain market conditions. As financial advisors continue to explore and adapt to the evolving ETF landscape, understanding their needs and preferences will remain pivotal for ETF issuers looking to thrive in this competitive environment.