Exchange-traded funds (ETFs) are on track to set record levels for both product launches and liquidations. Steady asset expansion and accelerating institutional adoption are prompting issuers to bring new strategies to market, but the proliferation of product lineups has intensified competition for assets under management, distribution shelf space, and internal capital. Consequently, ETF sponsors must determine not only which products to launch, but also which strategies warrant ongoing investment, according to “The Cerulli Report—U.S. Exchange-Traded Fund Markets 2026.”
During the first half of 2026, the industry rolled out 733 ETFs and liquidated 145, placing both metrics on pace to rival or surpass recent historical highs. Against this backdrop, product rationalization is becoming an essential operational discipline as sponsors evaluate which strategies demonstrate sufficient commercial viability to justify continued capital allocation.
According to Cerulli, 65% of ETF issuers identify balancing product development versus product rationalization as one of their primary operational concerns. Shifting investor demand and product differentiation follow at 61%, ranking ahead of market volatility and macroeconomic uncertainty at 35%.
When deciding which products to sunset, sponsors place the greatest weight on commercial viability. An overwhelming 88% of issuers cite insufficient asset growth as a key driver of liquidation decisions, while 69% point to inadequate demand from core distribution partners.
In contrast, 38% point to underperformance of the underlying investment strategy. These findings demonstrate that an ETF does not necessarily have to fail from an investment performance standpoint to face closure; it becomes equally vulnerable when it fails to build a credible asset gathering trajectory or secure distribution support.
“Early adoption, asset growth, and differentiated products can indicate an ETF with upside potential, but they do not guarantee sustained commercial viability,” states Kevin Lyons, Associate Director. “Both market conditions and allocator preferences can pivot rapidly, requiring ETF sponsors to continuously monitor their lineups across multiple operational fronts, including organic asset growth, absolute and relative performance, competitive fee positioning, distribution momentum, and client demand,” he notes.
Cerulli recommends that ETF lineup rationalization should not be viewed merely as the terminal phase of an unsuccessful strategy. “Product rationalization is a required discipline that enables sponsors to build more focused and commercially sustainable lineups,” notes Lyons, adding that the most successful asset managers “will not be defined by the gross quantity of ETFs on their platform, but by their capability to isolate strategies backed by authentic client demand and distribution access, act decisively when that viability erodes, and redeploy internal resources toward future growth drivers.”
