ETFs are increasingly straying from their basic function as low-cost building blocks of investing. This year, 466 new ETFs have launched, gathering $62.3 billion in assets. These products are becoming high-cost conduits for concentrated, risky strategies that deviate sharply from traditional diversified investing. Investors now face a market flooded with specialized products that offer little diversification benefit.

The expense structure reveals how much these products differ from traditional funds. New ETFs charge an average of 0.69% annually—more than 20 times what many index funds charge. 60% of new ETFs cost at least 0.5% yearly, while 20% charge 1% or more. Just 16% qualify as index funds, with over a quarter concentrating on single assets, fundamentally contradicting the diversification principle ETFs were designed to provide.

Extreme examples include the Tuttle Capital UFO Disclosure ETF and cryptocurrency funds that seek to double daily returns. This proliferation reflects a market shift toward niche strategies. The fundamental problem remains: these funds often serve speculative purposes rather than sound investment principles, leaving investors with expensive, concentrated bets masquerading as diversified solutions.