For a long time, investing in Canada came with a fairly simple rule of thumb. Mutual funds were expensive. ETFs were cheaper. If you wanted better odds, you bought ETFs instead.
That advice was broadly right, and for many investors it made a meaningful difference. Moving from a two percent mutual fund into a low cost index ETF is one of the few changes someone can make that immediately improves long term results without requiring better timing, better forecasting, or better luck.
But the investing landscape has changed, and the advice hasn’t quite kept up.
ETFs are no longer a category of investment. They are a structure, a wrapper really, and what’s being placed inside that wrapper today looks very different than it did fifteen years ago.
According to data from the Canadian ETF Association and SIMA, ETFs now account for just over a quarter of all investment fund assets in Canada.
Mutual funds still hold the larger share overall, but year after year the flow of new money continues to favour ETFs, which gives you a pretty good sense of where investor preferences are heading.
The momentum has clearly shifted.
That shift has generally been good for investors. Lower fees, better transparency, and easier access to diversification have all improved outcomes compared with the old mutual fund model, and index ETFs deserve real credit for forcing an industry to clean up its act.
When growth slows, products multiply
But when an industry runs out of easy growth, it doesn’t stop launching products. It just starts getting more creative about what it sells.
Anyone who invested through the 1990s and early 2000s will recognize the pattern.
As mutual funds grew in popularity, choice exploded. Sector funds, technology funds, income funds, market timing funds, each positioned as a smarter and more modern upgrade from boring diversification, even when the underlying ideas weren’t particularly new or well supported.
Most didn’t deliver. Many quietly disappeared. Investors were left with higher costs, more complexity, and portfolios that were harder to understand and harder to stick with when markets inevitably got uncomfortable.
Today’s ETF marketplace shows some eerily familiar parallels.
In 2025 alone, more than 300 new ETFs launched in Canada, the majority of them actively managed and very niche. In the United States, there are now more ETFs than individual stocks, which sounds like something someone made up for effect until you realize it’s actually true.
ETFs themselves didn’t suddenly become the problem – they simply became crowded. No one is launching another plain-vanilla S&P 500 ETF today, because that trade is already saturated and dominated by giants.
Ben Felix has described this wave of product development as ETF slop. I think the idea is broader than ETFs alone, because what we’re really seeing is investing slop, a growing pile of products designed primarily to attract attention and assets rather than improve long term outcomes for the people buying them.
The wrapper may be new. The incentives are not.
An ETF can hold a globally diversified index portfolio at very low cost, but it can just as easily hold leverage, derivatives, options strategies, narrow themes, or single stocks packaged to look simple and approachable even when they’re anything but.
The ticker looks the same either way. The experience for the investor does not.
ETFs no longer automatically mean low cost
One of the more subtle changes in recent years is how wide the fee range inside the ETF universe has become.
Excellent index ETFs still exist with management fees well below 0.20 percent, and those products remain some of the best tools available to self directed investors.
At the same time, many newly launched ETFs now carry fees closer to 0.70 percent, 0.90 percent, or even higher once trading costs and strategy frictions are factored in, which starts to look a lot like mutual fund pricing even if the label on the front has changed.
The danger is that investors continue to associate the word ETF with discipline and efficiency, even when the underlying strategy no longer reflects either.
The ETF wrapper earned investors' trust. Some of what’s being sold inside it doesn't always deserve it.
When choice works against investors
Much of today’s product innovation is built around very human instincts.
Some funds appeal to optimism, the belief that identifying the next big theme will lead to outsized returns. Others appeal to fear, smoothing drawdowns or promising some form of downside protection. Many appeal to income, especially when markets feel uncertain and investors are looking for something that appears more stable.
The common thread isn’t improved outcomes. It’s attention.
More choice often leads to more tinkering, more second guessing, and more opportunities to drift away from a sensible plan, usually at exactly the wrong time. The harder it becomes to separate long term investing from constant product selection, the more likely behaviour starts working against results.
This is how investing slop accumulates, not all at once, but one interesting fund at a time.
The strange reputation of asset allocation ETFs
One of the more ironic side effects of all this is how asset allocation ETFs are often discussed.
They’re frequently described as beginner products or starter portfolios, as though investors are expected to graduate from them once they become more sophisticated and move on to something more complex.
That framing has never sat well with me.
A single, risk appropriate asset allocation ETF already provides global diversification, automatic rebalancing, low costs, and built in behavioural guardrails, all of which are things investors tend to struggle with when left to their own devices, especially during volatile markets.
Adding more moving parts doesn’t make a portfolio smarter. It mostly just creates more opportunities to interfere with it.
Where this leaves me
None of this is an argument against ETFs. It’s really an argument for being more selective about what we expect them to do.
The ETF structure remains one of the most important financial innovations of the past few decades. It improved access, lowered costs, and gave investors far better tools than they had before.
But ETFs are no longer automatically the good guys.
Some remain excellent long term building blocks. Others are simply distractions dressed in familiar clothing.
For most investors, the fundamentals still matter far more than product design. Broad diversification, appropriate risk, low costs, and the discipline to stay invested when markets inevitably test your patience will always matter more than whatever flashy product happens to be launching this quarter.
You don’t need to keep upgrading your portfolio to prove you know what you’re doing. A sensible plan usually does its best work when you leave it alone.
