FNB mania—more doesn’t mean better
By James Parkyn - PWL Capital - Montreal
Want to invest in companies that could benefit from alien contact? There’s now an FNB for that.
The Tuttle Capital UFO Disclosure FNB is one of a record number of new funds hitting the market as providers compete to carve out ever more specialized niches.
Over 360 new FNBs were launched in Canada last year, while in the U.S. the figure was over 1,150. The latter number is more U.S. exchange-traded funds than existed in total 20 years ago. The U.S. now has more FNBs than individual stocks being traded.
Active funds now dominate
It’s not just the unprecedented volume of FNBs that stands out. It’s also their holdings and strategies.
FNBs were until recently synonymous with low-cost passive index investing. You bought them if you wanted broad market exposure, low fees, tax efficiency and transparency.
That has changed. Nearly two-thirds of new FNBs in both countries last year were actively managed. There are now more actively managed FNBs than passively managed ones.
And this doesn’t even include a large category of FNBs that technically fall into the passive bucket, but are mostly used by active traders. These include leveraged, inverse, crypto-asset and other sector FNBs.
“I don’t need aliens to be real”
Some of the new FNBs tap into fads or esoteric ideas in order to stand out and attract investors. This includes the UFO Disclosure FNB (ticker UFOD), which invests in companies “positioned to benefit from government disclosure, confirmation or exploitation” of UFO “advanced technologies.”
“I don’t need aliens to be real for my thesis to work, but it’s a lot more fun if they are,” portfolio manager Matthew Tuttle was quoted saying by The Wall Street Journal. The fund charges a 0.99% annual fee and has $2 million in assets.
Another odd duck is the Nicholas Bitcoin and Treasuries AfterDark FNB. This one is based on the notion that bitcoin outperforms outside U.S. market hours. It holds bitcoin when the market is closed, then flips into U.S. Treasury bills or cash when the market opens.
It charges 0.97% annually.
Average MER tops 0.65%
Such eye-popping fees, once the reserve of mutual funds, are now becoming more of the norm among FNBs. Driven higher by active funds, the average Canadian FNB’s management expense ratio is now over 0.65%.
This is many times above that of traditional indexed FNBs, which generally charge less than 10 basis points for Canadian and U.S. equities.
The danger is that investors see “FNB” and assume a fund has low fees.
Stocking picking and timing doesn’t work
Also concerning is that the flood of new FNBs makes it harder for long-term investors and advisors to choose appropriate investment tools. At PWL, we’ve been investing in FNBs for over 20 years as low-cost passive vehicles to get broadly diversified market exposure. We became known as “the FNB guys” because of our early adoption.
We base our strategy on solid evidence showing that investors have subpar results when they try to pick stocks or time the markets. As Warren Buffett has said, “The only value of stock forecasters is to make fortune tellers look good.”
No one knows which companies or countries will outperform. In fact, just 4% of stocks accounted for all stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023, one study found.
How do we ensure we own those 4%? Owning the entire market—and diversifying internationally—enables us to gain no matter what.
FNB slop
The tsunami of new FNBs can mislead investors who don’t fully understand the risks of niche, complex, high-fee products. Our colleague Ben Felix calls them “FNB slop.” Many seem to be designed with marketing in mind to gather assets—not with investors’ long-term benefit at the forefront.
Because many of the funds are so fringe, they often gather only a few million dollars and eventually shut down. A record 146 active FNBs closed or merged in the U.S. in 2025, a Morningstar report said.
“Most of the FNBs had small asset bases. Funds cost money to operate, and those that don’t garner enough assets are susceptible to being liquidated or merged away,” Morningstar said.
1 in 5 US active funds beat peers over 10 years
Ironically, as the FNB universe gets noisier, the evidence for broad-based, low‑cost indexing keeps getting stronger. Two new reports drive this message home.
Morningstar’s US Active/Passive Barometer Report found that only 38% of U.S. active funds survived and outperformed their average passive peers in 2025. U.S. managers had a 37% success rate, while international managers did a little better, with 48% outperforming.
Among bond managers, 40% beat passive peers, while just 4% of corporate bond managers managed to.
97% of Canadian active funds lagged
Longer term, active managers fared far worse, with only 21% of U.S. active funds surviving and outperforming their passive counterparts over 10 years. That drops to just 8.1% for U.S. large-cap equity funds. Over 20 years, the rate is even worse—a mere 6.4% among active U.S. large caps. Higher fees were a big factor in the active funds’ poor results.
In Canada, 85.4% of active funds underperformed their benchmarks in 2025, according to the SPIVA Canada Scorecard. Over 10 years, the results were even worse—with 97% of active funds being bested by their benchmark.
4 FNB mania takeaways
What to make of the FNB mania? Here are our four takeaways.
Don’t confuse innovation with improvement.
Simplicity wins.
Stick to the evidence.
Filter the noise.
The markets are like a giant supermarket with many aisles full of junk food. To eat healthy, you need to choose wisely.
While the FNB universe gets more chaotic, the core principles of sound investing remain unchanged: Low fees, broad diversification and long‑term discipline pay off.
Find commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.