Exchange-traded funds (ETFs) aren’t just popular — they’re taking over. Investors poured money into ETFs in record amounts in 2024, pushing global assets under management to $14.6 trillion by the end of January.¹ They can be cheaper than mutual funds, easier to trade than individual stocks, and offer exposure to everything from the S&P 500 to niche industries like pet care and artificial intelligence (AI).^2,3,4

But the story doesn’t stop at broad-market index ETFs. Investors are getting more tactical, more creative, and in some cases, a little more daring with their ETF picks. From sector-focused strategies to volatility-hedging tools to niche themes such as pet care and esports, today’s ETFs are expanding far beyond their original designs.⁵

Volatility hedging ETFs help tame swings

Some ETFs are built to help investors manage risk when markets get bumpy. Volatility-hedging ETFs use tools like options and futures — contracts that help the fund lock in prices or hedge against losses — to help smooth out returns. Some even take the opposite side of the market, meaning they rise in value when stocks fall.

Managed futures ETFs use futures contracts to track market trends and adjust positions based on price movement. Futures agreements allow investors to buy or sell assets at a predetermined price, often used to mitigate risk. These funds have seen mixed performance, but they can be a worthwhile consideration for investors looking for a straightforward risk management investment.^6,7

Buffer ETFs give investors a way to remain in the market while reducing exposure to volatility. These funds use options to absorb a set percentage of losses, offering a cushion during downturns. In exchange, they cap potential gains, placing limits on upside returns when stocks rise.⁸

Of course, these ETFs aren’t foolproof. They are complex, potentially expensive, and geared toward seasoned investors. They may also underperform during bull runs, given their focus on mitigating the worst of shaky markets. But for investors looking to weather volatile markets, they may be worth a closer look.

Sector selectors

Not all market sectors move in sync. When technology stocks soar but energy stocks stumble, sector ETFs let investors potentially go all-in on the winners — or attempt to avoid the laggards.

Technology, healthcare, and financials have long been investor favorites, but sector ETFs are expanding to include funds focused on green energy, robotics, and space exploration. In fact, thematic ETFs — which include many sector-focused funds — accounted for $225 billion in assets in 2024.⁹

Sector ETFs aren’t just about growth, though. Some investors use them to rotate into reliable sectors, such as consumer staples and utilities, when markets are shaky. Others use them for short-term tactical plays — moving into specific industries when economic trends shift.

One caveat? Sector ETFs can be volatile.¹⁰ They swing with general industry sentiments, and are concentrated investments. This could mean higher highs, but potentially lower lows as well. That’s why some investors pair sector ETFs with broader ETFs to balance risk and reward.

A niche ETF for every investor

Niche ETFs are attracting more attention as investors look for hyper-specific exposure to emerging trends. One example: Bitcoin ETFs. After years of regulatory hurdles, spot Bitcoin ETFs hit the market in early 2024. Within months, they had absorbed over $63 billion in investor inflows.

Other niche ETFs target trends like pet care (one pet-focused ETF gained 28% in 2024), esports, and even the metaverse. While these funds might sound like novelty plays, they reflect shifting consumer behaviors and investment opportunities.^11,12,13

That said, not all niche ETFs are built to last. Some underperform if the underlying theme loses momentum.¹⁴ Investors considering these ETFs should dig into the holdings, research the trend’s staying power, and be mindful of liquidity risks.

• What’s the expense ratio? Specialized ETFs often cost more than broad-market ETFs, which can lower returns.
• How liquid is it? Low trading volume can make it harder to buy and sell shares efficiently.
• What’s inside the ETF? Always check the holdings — some funds may track related sectors or indexes rather than hold individual stocks.
• Does it fit within a broader portfolio? Concentrated ETFs can add risk if not balanced with diversified investments.
• Is the theme sustainable? Trends come and go. Not every “hot” ETF will stand the test of time.

ETFs — and investors — keep evolving

ETFs have come a long way from their index-tracking roots. Whether it’s weatherproofing portfolios with volatility hedging ETFs, making tactical plays with sector ETFs, or taking a bold bet on a niche trend, investors have more options than ever before.

The key to ETFs lies in understanding the strategy behind the fund and how it fits into a broader investment plan. As ETFs continue to evolve, so will the ways investors use them to navigate markets, capitalize on opportunities, and build their financial futures.