May 27, 2026
Since ETFs came onto the market in 1993, they’ve offered investors a low-cost, tax-efficient investment vehicle. But buyer beware: some exchange-traded funds are starting to drift into ‘weird’ territory.
An ETF allows you to hold a pooled basket of assets, including stocks, bonds and commodities, which can be bought and sold like stocks — offering diversification without having to buy and manage individual stocks.
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While many conventional ETFs track a broad-based index like the S&P 500, thematic ETFs focus on trends or niches.
But ETFs are now becoming a “high-cost conduit for concentrated, risky or weird strategies,” writes Jason Zweig, columnist with The Wall Street Journal. “All too many of the newer ones are investment junk food. And, just as with candy, cookies or french fries, filling up on them can be bad for you.”
ETFs are getting weirder
Zweig points to the launch of the Tuttle Capital UFO Disclosure (UFOD) ETF in February, which is designed to “invest in companies positioned to benefit from government disclosure, confirmation or exploitation of advanced technologies tied to unidentified anomalous phenomena.”
In other words, UFOs and aliens.
The fund, which the firm says is engineered for “alien alpha,” is weighted toward companies “at the intersection of aerospace, defense, advanced materials, sensing and energy.” These industries, it says, are poised to receive “a massive influx of capital and technology in the event of a UFO or UAP disclosure.”
So far, the fund has $2.9 million in assets and charges 0.99% annually.
But, as Zweig points out: “Is it worth paying 0.99% a year for an ETF tailor-made for E.T.?”
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Tuttle Capital Management previously offered another unconventional thematic fund: the Inverse Cramer ETF, which was designed to short stock recommendations by Jim Cramer, former hedge fund manager turned host of CNBC’s Mad Money. The ETF was shut down and liquidated in 2024.
Zweig also points to the Nicholas Bitcoin and Treasuries AfterDark ETF — designed for investors who believe bitcoin performs better at night, after the markets close.
The fund works by providing bitcoin exposure after dark (from market close in the U.S. to market open the following day), holding cash and U.S. Treasuries during daytime trading hours.
The ETF, which started trading in April, has $30 million in assets and charges 0.97% annually.
Other thematic ETFs focus on anything from pet care to obesity treatments to biblical ‘responsible’ investing. However, they might also focus on a specific industry like clean energy or cybersecurity.
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Should you invest in thematic ETFs?
A report from Morningstar analyzed 4,000 ETFs that traded on U.S. exchanges (as of the end of March 2025). Of those, only 461 made the cut as long-term wealth builders.
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“Exchange-traded funds have evolved a lot over the past three decades, and they introduced a lot of investor-friendly innovations along the way,” writes Daniel Sotiroff, senior manager research analyst for Morningstar and author of the report. “But those great innovations came with a cost: an ocean of expensive and speculative ETFs that investors should ignore.”
Thematic ETFs are typically more volatile and come with higher management fees than conventional ETFs.
As Zweig points out in WSJ, this year’s new ETFs charge management fees of 0.95% or more annually. That’s “a far cry from ETFs that buy and hold hundreds of stocks or bonds for fees as low as $2 or $3 a year on a $10,000 investment.”
And, unlike “old-fashioned” broad-based stock-index ETFs, they’re typically less tax-efficient and could trigger surprise capital gains taxes.
There are different kinds of risk when it comes to ETF investing, according to Morningstar’s Sotiroff. The lowest risk for investors is in broad market funds, he says, while the further they stray from a benchmark portfolio, the more risk they take on.
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Before investing, make sure you read the ETF’s fact sheet or prospectus to understand the aims of the fund and what you’ll actually be investing in.
You can choose between active or passive investing. An active ETF is typically run by professional portfolio managers who try to beat the performance of an index. A passive ETF, or index ETF, aims to track the performance, with minimal human intervention.
There are pros and cons to both approaches, so choosing an ETF will depend on your goals and what role you want the ETF to play in your broader portfolio.
Rather than focusing on overall returns, Fidelity recommends looking at how the ETF performs relative to its benchmark. “Past performance is never a guarantee of future results, and it’s easy to misinterpret performance trends,” according to Fidelity Viewpoints.
But, with so many new funds on the market, “you can no longer take a fund’s quality for granted simply because it’s an ETF,” writes Zweig in WSJ.
You may want to consider working with a financial advisor to determine how ETFs will fit into your broader portfolio — and to filter out some of that investment junk food.
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Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
