How Advisors Are Tapping New ETF Strategies in 2026

Forget back-testing; all the new ETFs launched this year may need taste-testing first.

The ETF industry threw spaghetti at the wall in 2025, unleashing a wave of new funds, and leaving advisors wondering which ones were the perfect al dente. Nearly 800 new exchange-traded funds hit the market in the first three quarters of 2025, blowing past the 746 that debuted in all of 2024. With more than $1.4 trillion in global ETF flows this year, trading volumes hit nearly $60 trillion in the US alone. Advisors now find themselves staring at an ETF menu bigger than the Olive Garden’s, including crypto-linked funds, leveraged and single-stock strategies, defined outcome products, and an ever-growing lineup of active fixed-income.

But if this year proved that ETFs can house nearly any asset class, including private assets, 2026 is about putting them to good use. And rather than just being portfolio building blocks, ETFs are now being deployed to manage taxes, hedge inflation and reduce risk. “ETFs are front and center in portfolio construction,” said Patrick Huey, an advisor with Victory Independent Planning. “New launches are changing the landscape quickly.”

Never Ending ETF-sticks

Advisors’ most important New Year’s resolution this year may be keeping up with all the new products. Huey said he’s continuing to lean on the core index ETFs, including broad-based, total-market and sector funds. But one category expected to gain broader adoption is buffered and defined outcome ETFs. The funds could find their way into more conversations with clients, especially if the unpredictable macroeconomic backdrop continues, he added. They can serve as risk-managed equity sleeves for pre-retirees or cautious investors, offering downside protection with better upside than cash or fixed income, Huey said. But advisors need to get up to speed on what they’re buying. “They require due diligence — knowing how the buffer works, the cap on gains, and the product’s expiration mechanics — so clients don’t expect more ‘protection’ than the ETF actually delivers,” he said.

Clients are also worried about inflation, and that’s forcing advisors to lean more heavily into ETF-based hedges such as gold, TIPS, and commodities. “Gold, in particular, played a portfolio role this year as both crisis insurance and inflation ballast,” Huey said, adding that alternative and commodity ETFs often demand closer monitoring due to liquidity and structural differences.

The Noodles Are Better Abroad

After an exceptional run up in US mega-cap stocks, some advisors are looking to diversify, even if that means taking some upside off the table. “We see the strongest opportunities across India, China and Taiwan,” said Dina Ting, head of global index management at Franklin Templeton ETFs. China remains a compelling opportunity, supported by a strong manufacturing base. “China’s factories and ports are becoming even more efficient as they adopt greater automation and AI-driven production, allowing the country to move goods at lower cost and higher speed,” she said. Taiwan could also become a key market next year, as a leader in global technology supply chains. There are already major international investments in research and development and data centers, coupled with new government AI initiatives. Taiwan’s real GDP is forecast to grow 5.8% in 2025, one of the fastest rates among major economies, Ting said. 

“For investors using passive country ETFs, that combination of scale, competitiveness and an increasingly sophisticated export mix strengthens the case for maintaining or increasing exposure to China alongside other ex-U.S. allocations,” she said. For advisors looking for diversification, there are some countries that are less correlated to the US markets than others. A recent study from Franklin Templeton, authored by Ting, found that:

• Japan and Taiwan, followed closely by South Korea, had some of the lowest correlations to the S&P 500 over the past year. 
• Conversely, Canada, Brazil and Mexico had the highest performance parallels to the index. 

Changing policy cycles, where central banks and fiscal authorities are moving on different timetables, are another area to consider. Several Latin American and Asian central banks are approaching an easing mode, while the Federal Reserve remains more cautious. “In our view, the main risk for ETF investors is staying overly concentrated in a narrow group of US mega-cap and AI beneficiaries,” Ting said. “Global growth and policy cycles are becoming more uneven, and the AI trade has already re-rated significantly.”

Down to Brass Tax. Tax strategy is also expected to loom large next year. Rebalancing, tax loss harvesting, and the continued rise of ETF-based direct indexing tools are becoming central to portfolio construction. “The inherent tax efficiency of ETFs is a real differentiator,” Huey said. 

There’s high advisor demand for new active strategies, particularly in fixed income, thematic equities, and hedge-style exposures, and that’s creating new opportunities for boutique managers, said Greg Stumm, CEO of American Beacon Partners. His company is working on connecting advisors with a broader swath of active managers. “It is crucial for advisors to understand the tax implications of different strategies that have come to the ETF space over the last few years,” he said. As more complex strategies evolve in the industry, Stumm said advisor education will be critical. The question is no longer whether these types of ETFs will be used, but how creatively and how quickly, advisors will be able to adapt to the next phase of ETF innovation.

“It is crucial for advisors to understand the tax implications of different strategies that have migrated to the ETF space,” he said. “That is a major area of focus among our advisor contacts.”