Forget bears and bulls. The SEC wants to work on behalf of owls.

Who? Traders who are more nocturnal than diurnal. The commission granted a new exemption late last week that permits tokenized stocks to trade round the clock under certain conditions. It rolled out that five-year “innovation exemption” on the same day it convened a roundtable on 24/7 trading, and it’s moving forward in the wake of the Clarity Act’s failure in the Senate. The order effectively exempts market participants from having to comply with securities rules, and while that doesn’t directly affect mutual funds or exchange-traded funds, it’s indicative of the SEC’s direction on tokenization and round-the-clock trading.

“I have concerns about tokenization, but I don’t think it’s per se problematic … It could be a better way for trades to process — to be cleared and settled,” said Benjamin Schiffrin, director of securities policy at Better Markets. “It’s very troubling that the SEC [last week] essentially created two different regulatory regimes,” with one for traditional securities and a separate one with fewer consumer protections for tokenized securities, he said.

View from the Beach

Asset managers have been dabbling in tokenization, and some see it as an important step in meeting clients where they are, some said at last week’s Future Proof conference in Huntington Beach, California. “For us, tokenization is important. It’s a mechanism,” Brian Hartigan, global head of ETFs and index investments at Invesco, told ETF Upside. Further, it may be increasingly useful to engage with crypto-based wealth services in the future, as some younger investors may know all about tokenization but hardly anything about ETFs, he noted.

From a practical perspective, firms may use tokenization mostly behind the scenes, Allspring CEO Kate Burke said during a panel discussion, adding that the company is preparing a tokenized money market fund. Further, VanEck CEO Jan van Eck added that he “would look at tokenization as a derivative.”

Some of the firms already using tokenized assets include:

• Franklin Templeton, which last year added its OnChain U.S. Government Money Market Fund, has indicated plans to include tokenized assets in ETFs and mutual funds, per an SEC letter cited by Bloomberg.
• Invesco, which earlier this year became the investment manager of Superstate’s tokenized short-duration US Treasuries fund.
• But, it’s worth noting that some brokers, like Charles Schwab and Interactive Brokers, offer 24/5 trading for ETFs and other products outside the traditional exchanges, though that comes with limitations and caveats.

Dancing in the Dark: Making stock trading more like all-hours crypto trading may have unintended consequences, such as compulsive or excessive buying and selling, Better Markets’ Schiffrin said. For example, short-term investors may not realize that they could get better prices during daytime hours, so disclosures about some of the risks will be essential if and when widespread 24/7 trading happens, he said. And there’s the issue of market dislocations that happen while the SEC is literally sleeping. “From an institutional perspective, there’s an issue of suddenly having to monitor markets 24/7, and not necessarily at the times when the regulator will be monitoring markets,” he said.

Strap on your hiking boots.

Investors positioning for the Federal Reserve’s rate hike last week, an attempt to curb inflation exacerbated by rising energy prices due to the Iran war, have moved into short-term bonds. More than $9 billion flowed into short-term government mutual funds and ETFs in August, the second-best month on record after March 2020.

“Investors are increasingly paying attention to the short end of the yield curve,” said Joe Bullard, a fixed income strategy analyst at Morningstar. “But that’s not to say that the long end has been seeing outflows. Bond flows have been healthy for months across the bulk of categories.”

A New Old World

The market is in the midst of a transition to a new interest-rate and inflation regime, said Jason Bloom, head of fixed income ETF strategy at Invesco. But actually, this new world is similar to the pre-financial crisis environment. “What it really is, is a transition back to some level of normalcy out of what I called ‘this bizarro quantitative easing world’ that so many people grew up in,” he said. “It’s taken a while for all the participants in the market and for those [pricing] models to consume enough new data to replace all of that contorted, manipulated market data that was the result of the Fed’s artificially suppressing interest rates for the entire decade prior to Covid.”

Bond mutual fund and ETF flows, per Morningstar:

• Overall, taxable bond funds brought in $69 billion in August, the fourth consecutive month of inflows above $60 billion.
• Ultrashort bonds were the leading category, with $15 billion in net inflows, but intermediate core bonds were only $135 million behind.

Stock Picking for Bonds: Actively managed fixed-income funds are also seeing exponential growth. “In terms of an absolute flow number, passive ETFs have had larger flows than active ETFs, but in terms of a growth rate, active ETFs have definitely been larger than passive,” Bullard said. “Active management in fixed income makes a lot of sense because there’s a lot of inefficiencies within bond indexes.”

Sometimes one is all you need.

More than half of ETFs with initial prospectuses filed on or before June 30 of this year are single-stock funds, including those using leverage and derivatives, according to Morningstar’s latest report analyzing the state of the US ETF industry. This shouldn’t come as much of a surprise to anyone who’s spent any time parsing through new filings: Earlier this month, Canary Capital launched a staked ETF tracking the spot price of TRX, the native utility token of the TRON blockchain network, and REX Shares began trading a leveraged fund tracking Hyperliquid Strategies.

“The industry has evolved from a very small group of pretty sensible strategies — like SPY, a pretty plain vanilla ETF — to a decade later, bond ETFs and active ETFs,” said Zachary Evens, passive strategies analyst at Morningstar. “The market has gone from [being like] a stand at a farmer’s market, to a grocery store, to a Walmart, where now you can get almost anything you want, good or bad.”

A Not-So-Rare Breed

The single-stock wave goes beyond those funds, which have only been on the market since 2022. Certain categories of products that offer investors specific results, like defined outcomes, have become increasingly popular since the ETF Rule in 2019, which did away with issuers’ need to get exemptive relief under the ’40 Act, making more complicated strategies easier to launch in the ETF wrapper. Since then, companies have been able to bring nicher and nicher products to market, with launch decisions reflecting the economic reality of being an issuer in 2026, not necessarily any huge demand on the part of investors.

Still, the single-stock market, while booming in terms of launches, is also highly concentrated. According to data from ETF.com:

• Of the roughly 397 single-stock ETFs available at the end of 2025, nearly three-quarters (296 funds) launched that year alone.
• The 10 largest single-stock ETFs account for roughly 44% of the category’s total assets.

On Acquisition Alert: It may also be the case that issuers are innovating in order to draw attention from larger asset managers and potentially get bought, said Aga Kuplinska, senior VP of product development at Tidal Financial Group. “All these recent acquisitions, they only motivate smaller issuers more to do what they’re doing,” Kuplinska said. “If you focus on highly specialized, differentiated markets, someone will want to pay for it.”