Exchange-traded funds (ETFs) have seen a meteoric rise in popularity. In 2003, there were roughly 123 listed ETFs in the United States. Today, there are nearly 4,000. 

Now that investors have a better understanding of the wrapper’s benefits, the market is poised to grow. Starting your own ETF,  which can be a valuable asset for portfolio management, is more common than ever.

If you want to successfully launch your first ETF, start by knowing the best practices. Below, we’ve written the ultimate guide to how to launch an ETF — from analyzing the market and choosing the right partners to regulatory compliance and digital marketing strategies.

What Is an ETF, and Why Should I Launch One?

As of 2024, there are more than $10 trillion in assets under ETF management, with record net inflows north of $1.1 trillion. 

If that’s not enough to convince you to launch your own ETF, here’s a little more about why ETFs are becoming such a popular choice for investors.

What Is an ETF?

An exchange-traded fund (ETF) is an investment vehicle that pools investors’ money to buy a collection of securities, similar to a mutual fund, but trades on stock exchanges throughout the day like individual stocks. 

ETFs typically offer lower expense ratios than mutual funds, greater tax efficiency through their unique creation/redemption process, and enhanced liquidity for investors who want to buy or sell shares quickly at market prices.

They can track various asset classes including stocks, bonds, commodities, or currencies, and may follow passive strategies (tracking an index) or active approaches (managed by investment professionals seeking to outperform). 

Their transparent nature allows investors to see underlying holdings daily, while their flexible trading options include limit orders, stop-loss orders, and margin trading – tools unavailable with traditional mutual funds. This combination of diversification, cost-effectiveness, and trading flexibility has fueled their explosive growth over the past two decades.

Why Should I Launch an ETF?

Launching an ETF can be an outstanding opportunity for asset managers and investment firms. The ETF structure offers significant advantages, including operational efficiencies, potential for asset growth, and the ability to reach new investor segments that might not access your strategies through traditional vehicles.

One of the key attractions for investors is the liquidity these products offer, as ETF shares can be bought and sold throughout the trading day on a stock exchange, unlike mutual funds, which only trade once daily. Mutual funds still make up the lion's share of the managed fund industry, but ETFs now represent 33%, indicating substantial room for future growth.

In the U.S., 45% of all investors have ETFs in their investment portfolios — a number that keeps growing despite market uncertainty. 2024 saw the launch of 1,485 new ETFs, and 230 ETF products launched in Q1 of 2025. 

The rapid growth of ETFs is proof of the market’s receptiveness to new offerings and innovative products.

How to Create a Strategy for Your ETF Launch

Entering the ETF marketplace requires careful planning and strategic partnerships to stand out among the thousands of available options. Launching a successful ETF demands not only a compelling investment idea but also expertise in index selection, governance structure, and targeted distribution strategies.

Start with an Idea

If you want to launch an ETF, you need to have a product in mind. That means you need an investment thesis and a plan for what kinds of exposures the fund will include. 

Find an Index Partner

Once you’ve settled on an idea you’re happy with, you need to find an index for your ETF to track if you have a passive fund, or to act as a benchmark if you have an active fund. You’ll want an index partner who can quickly backtest, support your ideas, and help iterate on the fund design, all of which will help you find the angle you need to set your ETF apart from the competition. 

Develop a Distribution Strategy

Next, consider how your ETF will govern and interact with its shareholders. From there, figure out a distribution strategy. Ask yourself:

• How will the average investor hear about your ETF? 

• What will drive them to put their money in your product instead of another? 

Depending on the size of the issuer, distribution strategies will vary greatly. The biggest asset managers can leverage name recognition to some extent, but smaller firms will have to think creatively about how to get the word out about the fund.

What to Think About When Developing Your ETF

Once you know your strategy, the real challenge begins. 

The art of developing an ETF is really about choosing the ETF structure that offers the best possible benefits for your fund’s goals. 

Types of ETF Structures

There are several types of ETF structures:

• Index ETFs offer tax efficiency. These funds typically have lower portfolio turnover, which minimizes capital gains distributions, allowing investors to better control their tax liabilities.

• ETF series trusts build on pre-existing fund structures. By joining an established trust, issuers can leverage shared operational resources, compliance frameworks, and board oversight, significantly reducing startup costs and time to market.

• Standalone ETFs are not part of a series. This structure provides maximum autonomy over governance decisions and fund operations, though it typically requires greater upfront investment and regulatory navigation.

Selecting the right ETF structure is a major decision that will impact everything from operational costs to tax implications for your investors. 

When you eventually submit your ETF prospectus to regulators, you'll need to clearly outline which structure you’ve chosen and why it aligns with your investment goals.

ETF Transparency

You can also choose the degree of transparency your ETF will have, a decision with major implications for your investor relations and competitive positioning. 

Fully Transparent ETFs

A fully transparent ETF is essentially an open book. Investors and competitors can see what the fund holds daily, including exact securities and weightings, which builds trust but potentially exposes proprietary strategies. 

Transparent ETFs are more traditional and remain the industry standard, especially for passive index-tracking products where portfolio concealment offers limited advantages. They usually track a specific benchmark index, making it easy for investors to understand the fund’s holdings and performance targets.

Semi-Transparent ETFs

Many investors enjoy that transparency, but some fund managers worry about competition stealing ideas or front-running trades. That’s where the semi-transparent ETF comes into play.

Semi-transparent ETFs reveal some — but not all — of what is held, providing a certain amount of protection. These newer structures, which were only recently approved by the Securities and Exchange Commission (SEC), disclose holdings less frequently (typically quarterly) or use proxy portfolios that closely track performance while masking exact compositions. 

This makes them especially useful for managers with unique investment strategies, or in markets where revealing positions could make buying and selling more difficult and expensive.

Converting a Mutual Fund to an ETF

If you already have a mutual fund, you can simply convert it. This will give you all the advantages of the wrapper without having to build a new ETF from the ground up.

The conversion process requires approval from the SEC and careful planning for current investors. Taxes are very important to consider, as properly set up conversions can be tax-free and keep the fund's performance history intact. 

Since the first mutual fund to ETF conversion in 2021, many investment companies have followed this path, bringing billions in assets to the ETF structure. Investment managers should know that the process typically takes 6-12 months and may require hiring specialized lawyers who know how to handle the specific regulations for these transactions.

Other Considerations When Launching an ETF

There are many other factors to consider as you develop your ETF. ETFs hold groups of investments, so picking what goes into your ETF is important. 

You can include any type of asset class or mix of investments in your ETF. Some ETFs contain both stocks and bonds, while others focus on just stocks.

Know Your Market Capitalization Size

Remember to think about your market capitalization, or the size of companies in your fund. 

Is your ETF focused on big companies, small companies, or medium-sized ones? Your fund could also include a mix of different company sizes. 

This decision will affect both your fund's risk profile and growth potential, as larger companies typically offer more stability while smaller ones may provide greater opportunities for growth.

Consider Your Sectors and Markets

Next, consider sectors and market segments. A fund that focuses on industrials is going to be a lot different than a commodities fund or a fund that focuses on high-yield fixed income. 

There is a world of opportunities and potential combinations. Finding the right way to articulate your investment thesis through how you choose market capitalization, sector allocation, and other essentials will be how your ETF differentiates itself.

Determine Your Expense Ratio

The higher your expense ratio, the more your investors will pay you per share they own. However, a high expense ratio can be off-putting to investors, so you need to determine an expense ratio that makes sense given your positioning.

Finding the Right Partners for Your ETF

It takes a village to launch an ETF. In other words, you’ll need several partners to not only get it up and running, but also maintain it.

Your ETF partners should include:

• Authorized participants who handle creations and redemptions of ETF shares in the primary market

• Custodians

• An index service provider

• A fund manager 

• Sub-advisors

• Legal counsel 

• Transfer agents 

• A marketing and distribution team

Be aware that when choosing an index partner, you need someone who can help you come to market as quickly as possible. A responsive index partner can backtest rapidly, helping you discard ideas that aren’t working so you can succeed faster. “"The majority of ETFs will fail to garner over $250 in AUM,” said VettaFi’s Chief Product Officer Brian Coco. “This is why having an index partner that is invested in product success and that can help with marketing is important. You need to give yourself the best possible chance of success."

It goes without saying that you should always vet your potential partners. As an ETF sponsor, your reputation will be tied to the performance and reliability of these service providers. Ensure their goals align with your own investment goals so they can help you bring your ETF investment strategy to life.

ETF Regulatory Requirements and Filing

Prospective ETF managers must submit a fund plan to the SEC. You can find the necessary documents and forms on the SEC website, but make sure you consult your legal team before submitting anything.

SEC approval is required before you can launch an ETF. Whether you're launching an actively or passively managed fund, the SEC must still receive and process your paperwork. Typically, the approval process takes four to six months or longer.

Once the SEC approves your ETF launch, you will still be responsible for following all SEC rules. These include, but are not limited to:

• Transparency regulations: You’ll need to provide daily portfolio information on your website. In addition, you’ll need to make certain disclosures about your ETF's trading process. If your ETF holds custom investment baskets, they may also be subject to specific policies.

• Record-keeping regulations: Your website must track your net asset value, market price, and any premium or discount from the previous trading day.

Keep in mind that the SEC occasionally updates requirements to address market changes and investor protection concerns. Working with service providers who specialize in ETF compliance can help you reduce your operational burden and avoid costly mistakes.

Marketing, Distributing, and Operating Your New ETF

Making your new ETF stand out from the competition can be a daunting task. If your fund does something similar to what another fund has already been doing, you’ll need to find a unique angle to ensure your ETF captures the attention of investors. 

Being first to market with an idea is powerful, but that doesn’t mean there won’t be competition. Stand out by outperforming or having a lower expense ratio. 

Digital Marketing

Digital marketing and distribution are now the norm, and most potential investors research new ETFs online. Ensure your digital presence clearly communicates how your fund provides diversification benefits within an ETF portfolio. 

Investor behavioral data can help you find high-quality leads and get your product in front of them at the perfect time. 

Tethering your product to current market events and news is another excellent way to move the needle and set your product apart from the rest. 

Don’t forget that successful products tend to use a full-funnel marketing approach. They gradually build top-of-funnel awareness, leveraging data and analytics to move lower-funnel prospects toward conversion. This is especially important for active ETFs that need to communicate their value proposition beyond simply tracking an index.

Operational Costs

Determine how much your operational costs will be, and how much seed capital is necessary to meet those costs. 

Finally, make sure you have a plan for the first year of operation. Draft a break-even analysis, as well as growth projections.

Now That You Know How to Launch an ETF

Launching an ETF is a huge undertaking. But with the right partners and careful planning, you can bring your unique investment idea to the market and illuminate a previously invisible opportunity for investors. 

Have a killer idea for an ETF but need the right tools to get it in front of investors? Reach out to VettaFi now.