ETFs are gobbling up our money. And the trend is accelerating in a big way

Money poured into exchange-traded funds last year, and the brisk pace of asset growth suggests that the benefits of these funds go well beyond the convenience.

Maybe performance has something to do with it?

Most ETFs are baskets of stocks and bonds, which makes them look like mutual funds. Most are passive, meaning that they simply track indexes or sectors. Others, though, are steered through active management.

But what really sets ETFs apart is that they trade on stock exchanges throughout the day, making them more convenient for many investors. And their costs – their management expense ratios – are typically a fraction of those associated with mutual funds.

These benefits have been known since the world’s first ETF appeared in 1990, in Canada. What’s interesting is that inflows into ETFs aren’t levelling off after more than three decades; they’re picking up as investors gain access to funds that don’t simply track major indexes.

“We have seen an acceleration of investors going into ETFs, not only because of the benefits that we have known about for many years,” Andres Rincon, head of ETF sales and strategy at TD Securities, told me.

“What we’re seeing now is ETFs incorporating a number of different strategies and becoming more complex.”

Investors can tap the ETF market for pretty much anything.

There are actively managed funds. There are also leveraged funds, which provide a multiple of the daily move of an underlying asset. There are commodity-based ETFs, fixed income ETFs and even crypto ETFs.

And in one of my favourite innovations in recent years, asset allocation funds can mimic balanced portfolios that are split 60/40 between stocks and bonds, offering investors one-stop shopping.

Growth versions of these funds favour more stocks, while conservative versions favour more bonds.

With these proliferations, assets increased by US$1.5-trillion last year, to more than US$13-trillion in the United States.

In Canada, inflows into ETFs increased by $122-billion in 2025, a 62-per-cent acceleration over 2024, according to TD Securities.

No doubt, the rising stock market is attracting investors to ETFs.

But there’s a broader trend playing out here: More investors may be growing aware that the low cost of ETFs is a performance booster, often giving the funds a significant edge over pricier mutual funds.

Even sophisticated institutional investors, including pension funds and hedge funds, are recognizing the advantages as the landscape broadens beyond typical index-tracking products.

One criticism of this trend is that index-tracking funds might make bubbles worse, as more money flows to highly valued stocks through passive investing. This process can increase volatility, or so the theory goes.

The mutual fund industry is in a tough spot, though. Many of these funds have been losing ground to ETFs, despite the argument that active management can successfully navigate bear market downturns and avoid unattractive stocks.

According to data from the Investment Company Institute, US$550-billion flowed out of U.S. mutual funds in 2025, through November, even as inflows into ETFs picked up.

That marks a widening gap, and a potential source of continuing growth for exchange-traded funds that could reorient the investing landscape for years to come.

The mutual fund industry is still huge, valued at more than US$31-trillion in the U.S. alone, according to the ICI. If ETF assets continue to grow at a rapid pace, these more traditional funds could pay the price.

Are ETFs becoming a larger part of your investment portfolio? Let me know at dberman@globeandmail.com.

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