In August 2025, the number of exchange-traded funds (ETFs) in the U.S. surpassed the number of individual stocks for the first time, with over 4,300 ETFs compared to approximately 4,200 stocks, according to data compiled by Morningstar.
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This milestone reflects the rapid growth of the ETF industry, which has seen assets under management in U.S. ETFs reach $9 trillion by 2024, driven by their low costs, diversification, and trading flexibility. The surge in ETF numbers, up from just 9% of investment vehicles a decade ago to about 25% today, highlights their increasing dominance in the investment landscape.
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With over 4,300 ETFs surpassing the ~4,200 individual stocks in the U.S. as of August 2025, investors face a broader but more complex array of options. This can overwhelm retail investors, requiring greater due diligence to avoid overlapping or niche ETFs with higher risks or costs.
ETFs enhance market liquidity by offering intraday trading and diversified exposure, often at lower costs than mutual funds. However, the proliferation of niche or leveraged ETFs may introduce volatility or systemic risks, especially in less liquid underlying assets.
The dominance of ETFs signals a shift toward passive and index-based investing, reducing the focus on individual stock picking. This could pressure active fund managers and alter capital allocation, potentially concentrating investments in larger, index-heavy stocks.
The rise of ETFs fosters innovation, with products targeting specific themes (e.g., AI, clean energy) or strategies (e.g., leveraged, inverse). However, this may lead to market fragmentation or speculative bubbles in oversaturated sectors.
ETFs’ low fees and accessibility democratize investing, but the sheer volume of niche ETFs with higher expense ratios could erode cost advantages for uninformed investors.
ETF Growth Factors
ETFs typically have lower expense ratios than mutual funds (e.g., average ETF expense ratio of 0.44% vs. 0.93% for mutual funds in 2024, per Morningstar), attracting cost-conscious investors.
ETFs provide exposure to broad markets, sectors, or themes in a single trade, appealing to both retail and institutional investors seeking diversified or tactical strategies. ETFs’ in-kind redemption process minimizes capital gains distributions, making them more tax-efficient than mutual funds, a key draw for long-term investors.
The launch of thematic and specialized ETFs (e.g., targeting ESG, cryptocurrencies, or AI) has fueled growth, with 500+ new ETFs launched in 2024 alone, per Morningstar data. The shift toward index-based investing, driven by consistent outperformance of low-cost index funds, has boosted ETF assets, which reached $9 trillion in the U.S. by 2024.
Favorable SEC regulations, like the 2019 ETF Rule, streamlined approvals and reduced costs for launching ETFs, spurring growth. Brokerages offering commission-free ETF trading and fractional shares have lowered barriers, driving retail adoption, especially among younger investors.
This milestone reflects structural shifts in markets, but investors must navigate the growing complexity to capitalize on ETFs’ benefits while avoiding potential pitfalls.