Record 2026 ETF Launches and the Rise of Custom Tax-Hedged Funds
This year has so far seen more than one thousand new ETFs (Exchange Traded Funds) and as of 15th July, data released showed the exact figure to be 1,084 (at close of business 2025 records showed a record total of 1,161 new ETFs) with some funds offering leveraged bets on individual stocks or equity indices. Experts suggest this is somewhat akin to a trial-and-error approach to see what resonates with the market, as some of these fund managers and investment companies are not well known and are looking to emulate established market leaders such as the iShares Bitcoin Trust or Roundhill Memory ETF, who both received investment inflows within a matter of months to the tune of many billions by offering access to high-demand market products.
Analysts suggest that the increase in new ETF listings is due to increasing demand by investors, especially in the United States where as opposed to mutual funds, the ETFs also offer increased tax advantages, and as mentioned above are now offering increased access to a wider range of investment products. As of 30th June this year, data released showed that there were net inflows in excess of $1 trillion in ETFs listed in the US, with experts forecasting total inflow of $2.3 trillion by the end of 2026. Indeed, figures released for the Roundhill Memory ETF showed that in just under two months, the fund had received inflows in excess of $10 billion as investors demanded access to shares in the AI arena that were receiving huge amounts of investment.
Analysts advise that most newly listed ETFs have moved away from traditional tracker funds, the original backbone of the industry. Instead, today’s ETFs offer more exotic products, such as buffer ETFs, which provide downside risk protection alongside the transparency, low costs, and liquidity of traditional ETFs. One expert noted that a number of these funds are copycat funds, as when a new ETF offers a fashionable and popular investment, other ETFs follow quickly offering the same product. Another popular product is the customised ETF favoured by the high and ultra-high-net-worth investors, as it looks to defer and sometimes avoid capital gains tax.
The 351 Conversion
Experts advise that a Section 351 conversion is a tax-free strategy that lets investors pool or transfer appreciated assets, such as individual stocks or SMAs (Separately Managed Accounts), into a newly formed customised ETF without triggering immediate capital gains taxes. Immediately after the exchange, the transferring investor must own at least 80% of the new ETF shares. Furthermore, under standard diversification rules, the ETF portfolio must meet the 25/50 test, meaning no single stock can account for over 25% of the total value, and the top five stocks cannot exceed a combined 50%. Furthermore, holdings within the ETF must meet the stated investment strategy with cash, crypto, and government bonds not counting toward the diversification rule.
