One ETF issuer wants to skip the peewee league and go straight to pro.

Volatility Shares has plans for 32 exchange-traded funds, one for each team in the National Hockey League. The firm filed Aug. 14 with the Securities and Exchange Commission for ETFs that would track season performance across the league. The Anaheim Ducks ETF, for example, would invest in futures contracts on the CME FSPI NHL Anaheim Ducks Index, which “is designed to systemically measure the cumulative team performance … during games played over the regular and post-season.”

“The sums invested in these ETFs would not go to any economically productive use. Rather, they would be part of a zero-sum exchange, with one side wagering on one outcome and the other on the opposite, with money changing hands between them,” Morningstar Managing Director Jeffrey Ptak told ETF Upside. “The bottom line is that this would be another form of financialized betting, with all the associated problems.”

Skate to Where the Fund Is

How the SEC will respond to the proposed funds is unknown, though the regulator has asked issuers to hold off on launching prediction-market-style ETFs while it currently reviews public comment. Until now, those products proposed by a handful of companies have centered on election outcomes and all-or-nothing wagers on market-related events. Sports betting would be a new angle. Volatility Shares declined to comment on the line of hockey ETFs, though the prospectuses state that the funds would not invest directly in prediction markets or event contracts. Rather, they would perform based on increases or decreases in the associated futures contracts.

That speaks to another difference the hockey ETFs would have from other prediction-market-themed funds:

• Other ETFs to date all seem to be binary, with investors winning or losing completely, Ptak noted.
• The Volatility Shares hockey funds “sound more akin to traditional futures whose value can fluctuate,” he said. “If you believed, say, that the worst franchise in the NHL to that point would see its fortunes improve through the end of the season, then you could invest in the ETF in an attempt to cash in on that improvement.”

My Other ETF Is a Zamboni: The proposed funds reinforce a couple of trends, with issuers pushing the envelope of what an ETF can invest in, while simultaneously prepping or rolling out a wide range of new products. Almost certainly, anything resembling gambling will be viewed skeptically by financial advisors and buy-and-hold investors. But it’s also clear that a lot of Americans have the gambling bug: Trading volume on prediction markets like Kalshi and Polymarket reached $24 billion in April, according to figures from Pew. “ETFs were created to give investors efficient exposure to markets,” securities lawyer Adam Gana told ETF Upside. “Products like this are entertaining for sure, but are less about investing and more about packaging sports speculation in a securities wrapper.”

There are way more Davids up against the ETF Goliaths, and it’s starting to take a toll.

The combined share of ETF inflows for the three largest ETF issuers was around 80% roughly six years ago, but now sits at just 55%, according to recent data shared by Bloomberg Intelligence. The chipping away of BlackRock, Vanguard and State Street’s dominance is in part due to the boom in new ETF issuers and funds. Last year, the US saw 1,000-plus ETF launches and we’re easily on track for another record this year. Some of the little guys are having to get creative to compete (think UFOs). There are also crazes around single-stock, leveraged and other more experimental funds.

“It’s pure competition,” said Todd Sohn, chief ETF strategist for Baird Strategas. “Everybody’s getting into the space, and it’s going to come down to how strong your product set is and what your distribution plan is.”

First-Mover Advantage

To be clear, 55% of ETF inflows is still a major advantage. The size of the big three issuers versus all other issuers is “breathtakingly big,” Bloomberg Intelligence analyst Eric Balchunas wrote on X. “They’ve got nothing to worry about.” They also aren’t necessarily interested in stealing back market share through niche thematic plays:

• “I would not, honestly, expect BlackRock and State Street to be chasing 2X leveraged options-income return-of-capital, sports-betting, obscure crypto or any of the other degenerate, high-concentration corners of the market that have come in screaming with flow this year,” said Dave Nadig, president and director of research at ETF.com.
• Instead, he said he’d expect them to do “exactly what BlackRock has done” — wait and see where the real appetite is, then swoop in and gobble up assets, as it did with iShares Bitcoin Trust ETF (IBIT) after interest in crypto exploded.

But the giants can be slower-moving ships, since upstart issuers may have less red tape, making it easier for them to get new and different types of exposure on the market than it is for the ETF giants. “If you can get a head start … on a hot theme or a different type of solution, that’s how you chip away at some of that market share,” Sohn said, pointing to JPMorgan jumping on covered call funds around six years ago and those becoming massive products for the firm as an example.

Long-Lasting Trend? There may be a floor to how much market share smaller issuers can gobble up, and the wild card is the equity market, Sohn said. “If you have a rising equity market, you do some rebalancing,” he added. “But unless you really get the tree shaken and you go to a drawdown, it’s hard to put new money to work in different types of areas.”

Just like the menus at the Cheesecake Factory, maybe there are too many options.

In nearly every year since 2021, the number of options-based ETF launches has increased, transforming what were once niche strategies into a category with more than 700 products, according to Morningstar Direct data. The sector includes derivative-income ETFs, which generate income by selling options, as well as defined-outcome ETFs, which use options to provide specified levels of downside protection and upside participation. This surge in new products, though, has advisors questioning whether the market is evolving or simply overcrowded.

“When you have five good funds, competitors see that and come out with 100 more, and that doesn’t necessarily add more quality,” said Cyrus Amini, CIO at Hyphen Wealth Management. “The danger is always there of getting distracted by the newest, shiniest thing.”

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