ETF Zoo: The Leveraged ETF Frenzy Picks Up Momentum
It isn’t even the end of the first half and ETFs have already netted $1 trillion in flows. Find out how much is going to leveraged and inverse strategies, why it’s so important to understand what’s under the hood of thematic funds, and ETF hijinks happening around the SpaceX IPO in this episode of ETF Zoo.
The ETF landscape continues to expand at an impressive rate, with over 5,400 ETFs trading and $1 trillion in flows notched at nearly the halfway point of 2026. Find out what this week's ETF Zoo crew thinks of leveraged ETF demand, thematics, and more in this episode of ETF Zoo. Host Dave Nadig, President & Director of Research at ETF.com is joined this week by freelancer Lara Crigger; Mike Akins, founding partner of ETF Action; and Todd Sohn, Senior ETF & Technical Strategist at Strategas Securities.
Shining a Light on Leveraged and Thematic ETFs This Week
The ETF industry hit a remarkable milestone, crossing one trillion dollars in net inflows before even reaching the halfway point of the year. While eye-catching money has flooded into leveraged, inverse, and options-income products, the bulk of assets continue flowing into low-cost, broad-market index funds. The league table of top ETF providers has also shifted meaningfully, with Vanguard finally claiming the top spot and firms like Schwab cementing fifth place while legacy players like VanEck hold on in the top ten. Discussion amongst the crew also touches on if there’s still space for smaller, boutique issuers in today’s markets.
Single-stock leveraged and inverse ETFs dominated the conversation's edgier moments this episode, with the Zoo crew noting how the category has ballooned to nearly $550 billion when both leveraged and inverse products are counted together. Lara Crigger digs into how Defiance bucked ETF industry norms to convert an existing ETF overnight, effectively allowing an issuer to change an entire investment thesis without any investor notice. The fund saw strong inflows during the brief window it traded before being halted, and Defiance has since launched a second SpaceX leveraged ETF, underscoring just how insatiable demand for these products has become. (Read Lara's full article here, and then don’t miss Dave’s coverage of SpaceX as a value stock here.)
Thematic ETFs were also under the microscope this week. Todd Sohn points out that while the category is approaching 400 funds and $300 billion in assets, over 60 percent of thematic ETFs carry a Sharpe ratio below 1.0, meaning most are delivering poor risk-adjusted returns. Concerns were evident around the growing concentration risk (nearly 97 ETFs representing $1.2 trillion in assets hold greater than 35% semiconductor exposure) suggest that thematic overlap is far more pervasive than most investors realize.
There’s also no shortage of structural plumbing happening in the ETF industry this year. Dimensional's complex maneuver that involved launching clones, then reabsorbing them into multi-share-class funds could benefit investors in the long-run, but just how much reshaping is going on in ETFs this year. The broader share-class conversion wave is gathering steam, with Fidelity appearing close to a major move in that direction, according to Mike Akins, though there is real concern about whether large mutual fund conversions could saddle ETF shareholders with unexpected capital gains distributions.
Find out more about this week’s guests:
Lara Crigger: Freelance contributor at ETF.com, and follow Lara on LinkedIn
Mike Akins: ETF Action and follow Mike on LinkedIn
