ETF industry shifts in 2026

What happened: The $19.5 trillion ETF market is experiencing significant shifts in 2026, driven by three key trends according to JPMorgan. These include the growth of smart beta strategies, increasing demand for thematic ETFs, and the rise of non-transparent active ETFs. Meanwhile, the first half of 2026 saw divergent performance among ETF categories, with energy and semiconductor funds leading gains while utilities lagged. Utilities, once a bond proxy safe haven, have become a battleground in 2026 due to shifting fundamentals. ETFs have taken in over $770 billion in net new money so far this year, on pace to exceed last year's record of $1.49 trillion.

Market impact: The shift towards smart beta and thematic ETFs is driving demand for specific sectors and stocks, affecting their valuations and performance. For instance, semiconductor stocks have benefited from thematic ETF inflows. Conversely, the utilities sector is facing outflows as investors reassess their bond proxy status, impacting their stock prices. The rapid growth of ETFs is also reshaping global markets, with capital flows across regions gaining significance.

What to watch next: In the coming months, investors should monitor Q2 earnings from energy and semiconductor companies to gauge the sustainability of their respective ETF performances. Additionally, the regulatory landscape for active ETFs will be crucial, with the SEC's decision on non-transparent active ETFs expected in late 2026. Lastly, the total net inflows into ETFs by year-end will be a key indicator of the market's continued appetite for these investment vehicles.