The unprecedented ETF boom that has been driving investment democratization in the United States is reaching a critical juncture—the US stock market now has more ETFs than individual stocks, creating an increasingly complex and overwhelming investment landscape for retail investors and Wall Street hedge funds alike.

According to data compiled by Morningstar, the rapid pace of new product launches has resulted in over 4,300 exchange-traded funds (ETFs) now trading in the US market, marking the first time this figure has exceeded the approximately 4,200 individual US stocks. According to Investment Company Institute statistics, ETFs now account for approximately one-quarter of all US investment vehicles, significantly higher than the 9% recorded a decade ago.

While this ETF diversity has reduced costs and tax burdens for retail investors and can deliver the combined benefits of lower volatility and stronger excess alpha, it has also created significant challenges. For both retail and institutional traders, filtering through page after page of ETFs can be an extremely daunting task.

"Choice is great until it becomes a burden," said Douglas Boneparth, a senior fund manager at Bone Fide Wealth, which manages approximately $115 million in assets in New York. "When there are too many options, choice paralysis can occur, leaving investors feeling paralyzed rather than empowered by ETF opportunities."

This has also intensified the survival battle among ETF issuers. To differentiate themselves and justify charging higher ETF management fees, issuers have launched extremely high-risk funds—such as single-stock ETFs, leveraged and inverse ETF product lines—which critics argue retail investors may not fully understand, and the abnormally high leverage inherent in ETF risks may not be suitable for all retail investors.

The result is an increasingly saturated and complex ETF market, with thousands of nearly identical ETF investment strategies and similar-sounding ticker symbols, many of which may struggle to maintain long-term appeal and could ultimately face closure, with investors bearing the consequences.

**ETF Count Now Exceeds Stock Count**

Issuers have been busier than ever this year, having launched over 640 ETFs year-to-date, setting a record pace with an average of approximately four new ETFs launching daily. The number of ETFs launched in the first half of the year—469—was nearly 50% higher than the same period last year and approximately 140% higher than the five-year average.

Data compiled by Bloomberg Intelligence shows that June alone saw 108 new ETFs enter the market, setting a single-month record.

**ETFs Now Cover Every Imaginable Investment Sector**

These new ETFs are replacing more traditional investment options. In recent years, the number of open-end mutual funds, closed-end funds, and unit investment trusts has been declining, while new ETFs continue to emerge, keeping the total number of fund-type investment options stable at approximately 16,000.

Among the many newly issued US ETF products, most employ active management strategies. Numerous ETF products feature income-generating components, while others focus on stable defense investment sectors. Issuers have also actively launched money market ETFs, country-themed funds, and crypto-related ETF products.

"Now there's an ETF for almost everything—AI, pets, cannabis, 'woke' and 'anti-woke' portfolios," Boneparth said. "It's hard to tell whether you're investing in something meaningful for the long term or just completing a Buzzfeed online quiz."

This has prompted many investors to believe they need outside institutional help. According to research firm Cerulli, the proportion of self-directed investors (retail investors who make their own investment decisions) has declined from 41% in 2009 to 25% in 2024.

"People are starting to seek professional advice from major institutions because they don't even know where to start with ETF allocation," said Scott Smith, Senior Director of Advisor Relations at Cerulli.

**Investors Face Increasingly Difficult Choices**

Spencer Dunbar, who operates a YouTube channel with 28,000 followers discussing ETF and stock investments, has also noticed the overabundance of investment choices. He recently searched for an options income fund based on crypto platform Coinbase Global Inc. stock. To his surprise, there were eight options available, with some tickers almost indistinguishable: CONY, COIW, COYY, and COII, among others. Researching each product took longer than usual.

"The pressure is really intense. You have to stay on top of what's happening and can't miss any day in the market, because what if a new fund comes out that performs better?" said the 27-year-old Dunbar in an interview from California. "Because there are so many newly issued ETFs, you have to rely heavily on daily investment reviews."

For some professional investors, the excess means the industry has gone too far in certain thematic ETF selections. For example, there are nearly 70 Bitcoin-focused ETFs, with approximately one-third launched just this year.

"Choice overload dominates almost everything around us—from grocery store shelves to the ever-expanding ETF menu," and constant experimentation has led to "product proliferation," said Ben Johnson, Head of Client Solutions at Morningstar. "Only ETFs with enduring appeal will survive long-term."

He offered an analogy: "Trying Crystal Pepsi once was both fun and somewhat unsettling. But there are many reasons why it no longer appears on store shelves."