Money with Murphy: Stars, Stripes, and Spending

Key Takeaways ETFs are no longer just passive, low-cost vehicles. Active management, leverage, and complex strategies now define a significant and growing portion of the ETF universe. Choice and innovation come with tradeoffs. While product variety has increased, so have fees and structural complexity—raising the stakes for fund selection. Advisor due diligence is more critical than ever. In an ETF landscape with growing complexity, maintaining portfolio discipline and aligning exposures with client objectives requires deep and consistent analysis. The ETF Market is Structurally Shifting For years, investing in an exchange-traded fund (ETF) meant investing passively in an index. ETF investors bought portfolios designed to capture the returns of an index, like the widely followed S&P 500, by matching the holdings of the index. This approached allowed portfolios to replicate the performance of the index, but gave up the prospect of outperformance. This is in contrast to active management, which attempts to outperform an index. That convention reflected reality: regulatory and structural constraints made it difficult (often impractical) to deliver active management within an ETF wrapper. As a result, mutual funds remained the primary vehicle for active strategies. That paradigm shifted in 2019, when updated rules opened the door for active management in ETFs. Asset managers moved quickly to capitalize, and the market responded. With more than 5,000 ETFs now trading, surpassing the total number of publicly listed stocks, the investment landscape has become far more crowded than it was a decade ago. New product launches and asset flows reveal that ETFs have become the investment vehicle of choice, reflecting their success in lowering costs, improving tax efficiency, and broadening access to markets.