The ETF Ecosystem GALLERY TEST
terrarium A carefully curated ecosystem in which living organisms interact, adapt and evolve over time.
ETFs began as short-term allocation tools — bought for a purpose, then discarded, like a vase of cut flowers.
Three decades later, the exchange-traded fund has become something more closely resembling a terrarium: a self-contained ecosystem built to last, and even flourish, indefinitely. Underneath, a carefully engineered system of relationships, rules and incentives keeps it running as conditions change.
The Essential Elements of an ETF
The Container
A WORLD OF ITS OWN
A terrarium’s protective glass case reveals what’s thriving inside, and how each part depends on the others.
This transparency has helped make ETFs one of the fastest-growing investment vehicles in finance.
But what ETFs contain has changed.
Initially composed of equities, ETFs now span fixed income, commodities and derivatives. Yet the vessel pooling these assets remains the same.
“The ETF wrapper democratizes institutional-grade strategies and portfolio management for everyday investors,” says Pravin Bagree, Head of ETF Capital Markets at UBS Asset Management, an early player in the space and the largest Europe-based manager of indexed investments. “For me, the wrapper is just a great technology. It offers investors intraday liquidity, holdings transparency, certainty of execution and tax efficiency.”
Source: etfbook.com, UBS AM, 2026
There’s another advantage to this transparency: Investors can quickly judge whether the ecosystem is behaving as expected.
The Drainage Layers
A PRESSURE VALVE
A sealed terrarium doesn’t rely on just one mechanism to manage water buildup. Charcoal absorbs and regulates moisture before any excess water reaches the gravel and rock beneath.
ETFs also work in layers: Most buying and selling is absorbed by market makers, who match buyers with sellers. When demand outstrips supply, a deeper mechanism activates: New shares are created or redeemed to restore balance.
That layer is what allows ETFs to expand or contract with investor demand.
Before the market volatility of 2025, global ETF inflows in 2024 had risen by roughly 25% year-on-year to about $1.4 trillion, while trading volumes reached approximately $60 trillion, without a sustained spike in market volatility — a sign that increasing usage was structural rather than crisis-driven.
A system that absorbs pressure.
Amanda Rebello, Global Head of ETF and Index Funds Client Coverage at UBS, points out that in April 2025, the Trump administration’s “Liberation Day” tariffs roiled markets and spurred unusually heavy trading. Even then, much of that activity was handled by market makers matching buyers with sellers, without needing to create or redeem new ETF shares.
“You don’t need to unwind the underlying basket of securities if you can find the other side of the trade,” she says. “In those stress times, especially, brokers are typically very happy to pass on risk rather than sit on inventory.”
The Soil
A FOUNDATION OF RULES
The soil composition in any terrarium dictates not just what grows, but how resilient the ecosystem will be if conditions change over time.
For passive ETFs, index methodology is the foundation, determining through rules for selection, weighting and rebalancing how the portfolio takes shape.
The underlying methodology is rarely the first thing investors focus on — but it is integral to deciding an ETF’s long-term character and performance.
Making a methodology robust is part science and part art, according to Willem Keogh, UBS’s Head of ETF and Index Fund Investment Analytics. Portfolio construction inevitably calls for trade-offs.
"The science part is about the risk-return profile you want to achieve," Keough says. "The art element is how you strike the balance between a portfolio's competing forces — concentration, diversification, turnover, tracking precision — so it behaves as intended.
These portfolio design choices become most visible when markets become highly concentrated, as in the case of the Magnificent Seven mega-cap stocks.
Source: Bloomberg Intelligence, 2026
As a handful of tech companies dominate major equity benchmarks, some investors see the concentration as deserved, while others see it as a risk.
For the latter group, ETFs offer alternatives, says Ian Ashment, Global Head of Portfolio Engineering and Trading at UBS.
“An equally weighted ETF can be used alongside a market cap one to reduce that concentration, or maybe alongside a factor ETF that’s not looking at market cap weight,” he says. “By looking at other variables, we can provide a range of choices.”
The Light
A GUIDE FOR GROWTH
Light dictates the direction of growth. Every plant orients towards it; change the source, and the whole ecosystem reorders in response.
The same is true for the ETF industry: Wherever demand shifts, new products follow.
New ETFs are increasingly being shaped by conversations among investors, fund managers and index providers about what portfolios actually need. Client demand has fueled rapid growth: ETFs are expected to account for more than half of global fund market share by 2031, with that milestone potentially arriving as early as 2030 if current growth rates continue.
Source: Bloomberg Intelligence
Investor goals don’t just determine which products succeed. They’re shaping what gets created in the first place, as new launches proliferate.
Humidity
A FINE-TUNED ATMOSPHERE
A terrarium’s watering needs vary as conditions change, requiring careful observation and adjustment rather than a fixed routine.
The same principle applies within actively managed ETFs.
Rather than tracking a predetermined index, portfolio managers can adjust exposures in response to changes in rates, credit conditions, valuations or volatility.
Investors are embracing this flexibility. Of the 908 funds launched globally in 2025, 84% employed active strategies, signaling a growing appetite for active management alongside traditional index-tracking approaches. By February 2026, actively managed ETFs outnumbered passive ones on US exchanges for the first time.
“Most investors these days have a big chunk of assets in index funds, but they also have some targeted active exposures,” Ashment observes. “Being able to invest in a universe of active strategies through the ETF wrapper is a very strong value proposition.”
Plants
A SUCCESSFUL ARRANGEMENT
In a balanced terrarium, plants aren’t interchangeable. Each species performs a distinct role, and the health of the ecosystem depends on how they work together.
Diversification obtained through ETFs works the same way — pairing assets that respond differently to changing conditions, so no single asset carries too much weight.
Some exposures play a more specialized role. Gold or managed futures can act like moss — providing resilience or a hedge in volatile conditions, and stabilizing the environment when other parts come under pressure.
How much weight is assigned to these uncorrelated sources of return depends on the investor’s goals, says Keogh.
“Our role in this ecosystem is to provide the right building blocks, so the investor can implement their investment views and objectives in whichever combination they want,” he says.
As with a terrarium, the beauty of an ETF is in the precision that enables equilibrium: a complex interplay of engineering, expertise and intention that keeps everything in balance.
Precision. Expertise. Balance.
Behind the Craft From initial wireframes to final render, every element of The ETF Ecosystem is meticulously shaped by human skill and creativity. Explore the craft behind this 3D world.
Andréa Philippon 3D BOTANICAL ARTIST Andréa creates highly detailed 3D videos that seamlessly blend the physical and digital realms. His profound love of plants, fungi and technology drive his work, and he explores the intersection of these captivating fields by developing vibrant animations that merge real-world elements with digitally rendered nature.
