The Rise of ETF Slop — Key Takeaways
Avoid thematic, buffer, covered call, and single-stock ETFs — all four categories show systematic underperformance after fees, with leveraged single-stock ETFs trailing simple benchmarks by 9–12 percentage points per year.
Key takeaways
ETF structure is now a high-fee active fund delivery mechanism, not an index
ETF structure is now a high-fee active fund delivery mechanism, not an index
- 2025: >1,000 US ETF launches, majority actively managed; average fee for new US ETFs >0.7% vs <0.1% for index ETFs.
- For first time in US history, more ETFs exist than individual stocks, and active ETFs outnumber index ETFs.
Thematic ETFs underperform by 6%/yr avg in 5 years post-launch
Thematic ETFs underperform by 6%/yr avg in 5 years post-launch
- 2021 academic study: stocks in theme rise before ETF launch, then revert as optimism normalizes.
- Morningstar 2025: only ~10% of thematic funds globally outperform at 10-yr horizon; 100% of Canadian thematic funds close or underperform by 15 years.
Leveraged single-stock ETFs underperform frictionless benchmark by 9%+/yr
Leveraged single-stock ETFs underperform frictionless benchmark by 9%+/yr
- Bessenbinder 2025: long-leveraged single-stock ETFs lag benchmark by 0.79%/month; inverse funds lag by 1.01%/month (>12%/yr).
- Financing costs hidden in swap contracts — not in expense ratio — cause 2x ETFs to deliver less than 2x up and more than 2x down.
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In this video
- 1mIntroduction: The Rise of ETF Slop
- 2mETF Basics and the Problem with Complexity
- 5mThematic ETFs: Optimism and Underperformance
- 9mBuffer ETFs: Engineering for Sales, Not Outcomes
- 13mCovered Call ETFs: High Yield, Hidden Costs
- 15mSingle Stock ETFs: The Sloppiest Slop
- 18mConclusion: Complexity Is Not Your Friend
“You get what you don't pay for.”
— John Bogle
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