Exchange-traded funds (ETFs)

ETFs Surge in Early 2026

Exchange-traded funds have captured an extraordinary wave of capital in the opening weeks of 2026. U.S.-listed ETFs attracted $165 billion in January alone, shattering previous records and surpassing the combined inflows of the last three Januarys. This torrent reflects a broadening market rally, with leadership shifting from concentrated big-tech positions toward small caps, value stocks, emerging markets, and international equities.

The surge coincides with a notable rotation: small-cap earnings growth is projected to outpace large caps for the first time in years, aided by anticipated further Federal Reserve rate cuts that disproportionately benefit debt-sensitive smaller firms. Fixed-income ETFs also posted record inflows, particularly into shorter-duration and actively managed products, as investors hedge against potential equity volatility while locking in still-elevated yields.

Active ETFs represent the fastest-growing segment. Their assets ballooned 64% in 2025 to nearly $1.5 trillion, fueled by launches from major players like Vanguard, Fidelity, and T. Rowe Price. Recent U.S. SEC approvals for ETF share classes—allowing mutual funds to offer lower-cost, tradable versions—could channel an estimated $75 billion annually into these vehicles, potentially reaching $1.5 trillion over time. In Canada, asset allocation ETFs and innovative structures like option-based strategies drive similar momentum.

Yet tensions persist. Passive index ETFs still dominate inflows in many categories, benefiting from rock-bottom fees and broad exposure, while active strategies promise alpha but carry higher costs and performance risks. Record inflows mask outflows in certain areas, such as small-cap ETFs despite their outperformance, suggesting selective caution. Broader adoption also raises questions about liquidity strains in less-traded segments and over-reliance on ETFs for market access during stress events.

The stakes involve trillions in household and institutional wealth: mistiming rotations or sticking to concentrated positions could erode returns significantly, while inaction on diversification might miss rebound opportunities in undervalued areas. With global ETF assets pushing toward new highs, the product’s evolution—from passive cores to active satellites and thematic plays—reshapes how capital allocates across economies.