Exchange-traded funds used to be the simple answer: buy a broad ETF, keep costs low, and move on. Now the menu is massive, with thousands of ETFs chasing every theme imaginable.

That abundance creates a new headache—selection. A newer solution is gaining traction: ETFs that invest mainly in other ETFs.

What They Are

An “ETF of ETFs” is a single fund that holds a basket of other ETFs instead of picking individual stocks or bonds directly. The appeal is straightforward: one ticker can deliver a diversified mix across U.S. equities, international markets, bonds, and specialty slices like real estate or inflation-protected bonds, depending on the strategy.

Why Now

As the ETF universe expands, it becomes easier to build a portfolio and harder to build the right one. Many investors want professional-level asset allocation without paying traditional advisory pricing. ETF-of-ETF structures try to sit in the middle: more guidance than DIY picking, less cost than a full-service relationship.

Fee Reality

This convenience is not free. These funds typically charge their own management fee, and the underlying ETFs they hold have their own expenses as well. The right way to judge cost is to focus on the fund’s all-in expense figure and understand whether it includes acquired-fund fees. A low headline wrapper fee matters only after you confirm the combined expense load and compare it to buying the building-block ETFs directly.

A “No-Cost Blueprint” Angle

One clever angle: most ETFs publish holdings frequently, often daily. That transparency can be used as a research shortcut. Instead of buying the ETF-of-ETFs, investors can examine what it owns, then decide whether to buy those underlying building blocks directly. It’s a way to learn from the portfolio design without paying for it.

Holdings Clues

For instance, Cambria Global Asset Allocation ETF (GAA) offers a window into how a diversified strategy can be assembled. By scanning its holdings, investors can see which real estate and inflation-protected bond ETFs it favors, then compare alternatives on cost, liquidity, and tracking. The lesson is less about copying perfectly and more about upgrading selection skills.

All-in-One Deals

The strongest use case tends to be balanced, multi-asset funds built for long holding periods. These “one-ticket portfolios” typically combine stock and bond ETFs, maintain a target mix, and rebalance on a predictable schedule. Because they compete with other allocation products, pricing is often kept within a range that stays defensible.

AOM Example

iShares Core Moderate Allocation (AOM) is a representative model: a diversified blend of iShares ETFs that can include U.S. stocks, foreign equities, and bonds. The design is meant to be held through market cycles, with periodic rebalancing to keep risk from drifting. The net expense ratio has been about 0.15%, reflecting a moderate cost for a packaged allocation.

Convenience Value

Rebalancing is an underrated benefit. Without it, a portfolio can quietly become riskier as winners grow to dominate. With an all-in-one ETF-of-ETFs, the rebalancing happens inside the product, reducing decision fatigue and keeping the risk profile closer to the intended plan. For many households, simplicity increases the odds of staying consistent. Benjamin Graham, an investor and author, writes, “The investor’s chief problem—and even his worst enemy—is likely to be himself.” That’s a reminder that a plan you can stick with often beats a plan you keep redesigning.

Strategy Versions

Not all ETF-of-ETF products are built to be quiet, long-term holdings. Some focus on tactical strategies—momentum, sector rotation, or trend-following—where the fund reshuffles frequently based on signals. These can be tempting because they promise responsiveness in changing markets, but they also introduce more trading, more complexity, and usually higher fees.

Pricey Case

First Trust Dorsey Wright Focus 5 ETF (FV) is an example of a more active, rules-driven approach. It holds a small lineup of underlying First Trust ETFs and evaluates the lineup frequently, making changes when momentum leadership shifts. That intensity raises practical questions: a higher total expense ratio around 0.87%, a reliance on timing, and the impact of growing assets.

Scale Risk

When a fund holds only a handful of underlying ETFs, its own trading can start to move the pieces it owns. Large buys or sells may create ripples in the underlying ETFs, especially during transitions. This is a structural issue, not a moral one: concentration plus frequent changes can amplify frictions that do not show up in a simple backtest.

Smarter Use

ETF-of-ETFs products can be used well by matching the tool to the goal. Long-term asset allocation funds may fit investors who want broad exposure, automatic rebalancing, and fewer moving parts. More tactical versions may fit only those who understand the trade-offs and can tolerate underperformance during periods when the signals struggle.

Quick Checklist

Before buying, confirm the total cost, not just the stated management fee. Check what the fund owns to avoid paying extra for holdings you already have elsewhere. Review how often it trades, because higher turnover can increase the chance of taxable distributions in some cases, even though ETFs are often relatively tax-efficient. Finally, ask whether the strategy adds real diversification or merely adds wrappers.

The smartest “new” ETF move is not automatically buying an ETF that buys ETFs—it’s using the structure with intention. A low-cost, balanced version can simplify a portfolio and keep risk on track, while a pricey, fast-trading version can add complexity without clear payoff. For many long-term investors, the bigger edge is consistency—supported by simplicity—rather than constant switching.