U.S. ETFs Surpass Individual Stocks: A 20-Year Transformation

Major Shift

Over the past two decades, the U.S. exchange-traded fund (ETF) market has undergone a dramatic transformation. What began as a niche investment vehicle has evolved into a dominant force, not only in terms of assets under management but also in the sheer number of listed products. Today, there are more ETFs than individual stocks trading on U.S. exchanges - a milestone that highlights the profound shift in investor preferences and financial innovation.

Current Market Snapshot (2025)

• ETFs total: 4,370 listed in the U.S.
• Individual stocks total: 4,172 listed on U.S. exchanges

This milestone reflects both the steady consolidation of the stock universe and the explosive growth of ETFs, fueled by strong investor demand for cost efficiency, diversification, and flexibility.

The story is clear: in just two decades, ETFs have gone from a handful of offerings to thousands of choices, spanning nearly every asset class and strategy.

Growth of ETFs Over the Past 20 Years

Decline in Listed U.S. Stocks

This contraction in the stock universe has magnified the relative dominance of ETFs.

Drivers of ETF Growth

1. Cost Efficiency - ETFs typically offer lower fees than mutual funds, appealing to both retail and institutional investors.

2. Liquidity and Flexibility - Intraday trading and broad market exposure make ETFs attractive for both traders and long-term investors.

3. Product Innovation - Active ETFs, thematic products, options-overlay funds, and even single-stock ETFs have expanded investor choices dramatically.

4. Tax Efficiency - ETFs offer structural advantages in managing taxable events, making them more attractive in taxable accounts.

5. Shift Toward Passive Investing - The rise of index investing has powered enormous inflows to core products tracking the S&P 500, Nasdaq, and other benchmarks.

Looking Ahead

With assets under management already surpassing $10 trillion and annual flows breaking records, ETFs are positioned for continued growth. As technology, regulation, and investor demand continue to evolve, expect further innovation, more specialized products, and even deeper penetration into portfolios of both retail and institutional investors.

The fact that ETFs now outnumber individual stocks is more than a statistic; it reflects a fundamental shift in how markets operate and how investors allocate their capital in a modern, diversified, and efficient way.

Behavioral Dynamics and Market Impact

The rapid rise of ETFs has not only changed how investors build portfolios but also how markets behave in the short term. One of the most significant dynamics is the increasing uniformity in investor behavior. As ETFs drive more capital into the same broad indexes and thematic funds, market participants tend to react in a synchronized way to macroeconomic news, earnings results, and shifts in risk appetite.

This behavior reinforces well-known patterns such as “risk-on/risk-off” market regimes, where large flows simultaneously pour into or out of equities based on sentiment around interest rates, growth expectations, or geopolitical risk. When a large share of market participants is moving money in or out of the same ETFs, those flows can amplify price swings, driving stronger momentum during rallies and more pronounced pullbacks during risk-off episodes.

From a structural perspective, this herding effect could result in more persistent short-term trends in major indexes such as the S&P 500. Because ETFs often rebalance daily to match their underlying indexes, the mechanical buying and selling pressure can create feedback loops. This feedback loop, in turn, pushes prices in the same direction for longer, sometimes beyond what fundamentals alone would justify.

For traders and active investors, these dynamics can be both a challenge and an opportunity. On one hand, synchronized behavior may lead to sharper, faster moves in prices, increasing volatility risk. On the other hand, the predictability of these short-term trends can be advantageous for systematic strategies, such as short-term trend-following or mean-reversion models, that are built to capture repetitive patterns.

This raises an important question for the broader market ecosystem: what happens if the trend toward passive and ETF-based investing continues to accelerate? Some analysts argue that while market efficiency is not fundamentally compromised, the dominance of ETFs and passive flows could reduce the diversity of market opinion. In such an environment, price discovery may become more concentrated in fewer moments - such as earnings releases or major economic reports - while the rest of the time, momentum and liquidity-driven moves dictate price action.

Looking forward, these behavioral dynamics suggest that the evolution of the ETF market will have implications far beyond the products themselves. Investors, portfolio managers, and regulators alike will need to adapt to a market where collective behavior drives short-term performance and where understanding flows is as important as understanding fundamentals. The continued rise of ETFs not only represents a structural shift in the investment landscape but also a key driver of how modern markets behave on a day-to-day basis.