📈  Chart of the Week 8/31/2025

By Michael Allison, CFA

There Are More Recipes Than Ingredients

When you walk into a kitchen, you don’t expect the number of recipes to be limited by the number of ingredients in the pantry. Eggs, flour, and butter can be transformed into pancakes, pasta, or pastries. The same is true in today’s financial markets: the raw ingredients—stocks—may be finite, but the number of recipes—ETFs—continues to multiply.

This week’s Chart shows that there are now more U.S.-listed ETFs than there are publicly listed companies. Some see this as evidence of an ETF “bubble,” a sign that too many products are chasing too few investable ideas. But I’d argue the opposite: the proliferation of ETFs reflects not excess, but innovation and accessibility.

The Cost of Innovation Has Declined Significantly

In the early 2000s, launching an ETF was an expensive, complex proposition. You needed a big balance sheet, a trusted distribution network, and a willingness to pay up for custody, compliance, and market making. Today, the barriers are dramatically lower. Platforms like ETF Architect, SEI, Tidal, Ultimus, and others have made it possible for asset managers—large and small—to bring products to market faster and cheaper than ever. The economics resemble software: once the “infrastructure” is in place, the marginal cost of creating a new fund is somewhat minimal.

More Choice, More Precision

Critics argue that there can’t possibly be demand for thousands of ETFs. But demand isn’t uniform—it’s specific. Investors aren’t just buying “the market” anymore; they want solutions tailored to their goals. Some ETFs provide downside hedging. Others target themes like AI, clean energy, or longevity science. Still others provide tax-efficient overlays to traditional exposures. The diversity of offerings is what allows investors to construct portfolios that reflect both their risk tolerance and their worldview.

In other words, we no longer live in a one-size-fits-all investing world. Just as the cookbook industry thrives despite being based on mostly the same ingredients, ETF sponsors are finding creative ways to combine securities into solutions that resonate with investors’ needs.

What It Means for Investors

In my view, having more ETFs than stocks doesn’t mean the system is oversaturated. It means that packaging, distribution, and customization have finally caught up with investor demand. Like recipes, not every ETF is destined to become a household staple. Some will fall flat, some will be fads, and a few will become enduring classics. But the sheer variety ensures that investors—from retirees seeking risk mitigation to institutions managing liquidity—have a menu that’s broader, cheaper, and more innovative than ever.

The pantry hasn’t gotten bigger. But the cookbook certainly has.

Sources: Morningstar, Bloomberg, ETF.com

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