Wall Street has spent decades driving the cost of investing toward zero. It’s been a genuine win for investors. Broad-market exposure that once required expensive mutual funds can now be purchased through ETFs charging only a handful of basis points.
But when inexpensive market exposure became a commodity, the investment industry did what industries tend to do: it found new things to sell. And lately, it has been selling a lot of them.
More than 1,500 ETFs were launched in the 12 months ending August 2026—roughly 29 new funds every week. Increasingly, these ETF’s aren't simply another inexpensive way to own the market. In 2025, roughly 27% of new ETFs were built around a single stock using leverage, short exposure, or options strategies.
The result is something that increasingly resembles a product-development laboratory: launch enough funds, attach them to whatever investors are interested in right now, and see what attracts money.
The launches get plenty of attention. The closures, not so much.
What Happens to the Funds That Don't Catch On?
Single-stock ETFs provide an especially useful glimpse at the other side of this boom because they have become such a meaningful part of new product creation.
Since single-stock ETFs first arrived in the U.S. market in 2022, the category has expanded rapidly. Morningstar recently examined 518 such funds launched in the last few years, and found that 65 of them, or about 13%, had already been closed down. Among those closures, the median fund survived just 206 days and lost 25%.
Imagine investing $100,000 in one of these products. If your experience resembled the median fund that ultimately closed, roughly seven months later your investment would be worth about $75,000.
Then the fund disappears.
You generally don't lose the remaining $75,000 simply because the ETF closes. The fund liquidates its holdings and returns the proceeds to shareholders. But now you're left making another decision after a $25,000 loss.
Do you find a similar fund? Move the money into something broader? Abandon the strategy entirely? Chase the next promising idea?
The investment loss is painful. The forced decision that follows can make matters worse.
Even Winning Investments Can Disappear
It would be easy to assume ETF sponsors simply close funds because their investments performed badly. But that's not necessarily how the economics work.
ETF companies ultimately need funds to gather enough assets to justify the cost of operating them. Funds with small asset bases are particularly susceptible to closure, regardless of whether their shareholders have personally made money.
So consider that same $100,000 investment, but this time the strategy works. Your ETF rises 25%, taking your account to $125,000. But regardless of its investment performance, the fund doesn’t attract enough investors. The sponsor decides it isn't economically worthwhile and liquidates it.
If you hold the ETF in a taxable account, that liquidation can force you to recognize the $25,000 capital gain, even though selling wasn't your decision. At a 15% federal long-term capital-gains rate, that could mean roughly $3,750 in federal tax, potentially more depending on your tax situation. ETF liquidations can create taxable gains for shareholders whose positions have appreciated. That reveals a risk investors don't often think about: You can be right about the investment and still be wrong about the product.
A Product Experiment or a Portfolio Holding?
None of this means ETFs are bad investments. Far from it. ETFs remain some of the most useful tools available for building inexpensive, diversified portfolios.
The problem arises when the familiar ETF wrapper makes every new product look equally suitable for long-term investing.
It isn't.
For a fund company, launching dozens of specialized ETFs and discovering that only a few attract meaningful assets can still be a perfectly rational business strategy.
For the individual investor, though, being caught up in one of the experiments that doesn't work out can be much more consequential.
Before buying the newest ETF built around a hot stock, emerging technology, clever options strategy, or investment theme, the question shouldn't simply be: Could this go up?
Ask instead: What job does this fund perform in my portfolio, and are both the strategy and the product itself likely to be around long enough to do it?
Wall Street is very good at advertising new investment ideas.
It is considerably quieter when they end up in the graveyard.
Wall Street will never run out of things to sell you. New ETFs, new strategies, new themes, and new ways to package the same underlying investments.
At Hanover, we start somewhere different: with the plan. What are you trying to accomplish? What risks actually matter? And what investments give you the most efficient way to get there?
The portfolio should be built around your goals, not around whatever happens to be sitting on the product shelf this year.
If you'd like a second opinion on whether your portfolio is actually built that way, we'd be happy to take a look.