Where could ETFs go in the next 12 months?
State Street has shared several ETF predictions for how ETFs could grow in 2025 and beyond including a focus on artificial intelligence and alternative investments.
The firm’s ETF Impact Report 2025–26 discussed a range of predictions as to how ETFs could develop beyond their current state. At the end of 2024, there were US$13.8 trillion ($21.3 trillion) in assets under management in ETFs globally across 9,541 products.
Some US$13.2 trillion sat in passive products with US$1.1 trillion in active products, while 75 per cent of products were investing in equities.
State Street predicted:
The global ETF market takes in US$2 trillion in 2025
Global ETFs could see their “strongest year ever” in 2025, thanks to demand from sovereign wealth funds and uptake by international investors. Inflows into international ETFs specifically could double, the firm said, thanks to regulatory advancements, expanded product offerings and increased accessibility.
The first quarter of 2025 has already seen inflows of US$431 billion into the global ETF market, helped by launches of active ETFs including multiple launches in Australia from firms such as GCQ, India Avenue and PIMCO.
“Another tailwind is the ongoing migration from mutual funds, as more investors recognise ETFs’ potential structural advantages, namely their liquidity, tax efficiency and cost. With active ETFs capturing an ever-larger slice of the pie and new alternative exposures expanding the investable universe, expect ETF growth to continue its rapid ascent.”
Global active fixed income ETF AUM will hit US$700 billion by the end of 2026
A trend that the firm highlighted is likely to be driven by international investors is the rise of assets in fixed income ETFs as investors lean on active ETFs to respond to central bank movements and adjust duration. In Australia, Betashares recently launched a range of three defined income corporate bond ETFs, each with a different maturity date, while PIMCO added four active fixed income ETFs to its range in February.
“While US demand has been a primary driver, we anticipate non-US markets will propel the asset class’s next wave of expansion.
“This momentum should accelerate substantially over the next year and a half – we expect global active fixed income ETF AUM to reach US$700 billion by year-end 2026.”
AI will lead thematic ETFs to record flows in 2025
Thematic ETFs, especially those focused on artificial intelligence, are on pace to post record flows in 2025. In Australia, AI ETFs are already available from firms such as Global X, Betashares and iShares.
“In 2024, the proverbial dam broke as investors sought exposure to the companies driving the next era of AI innovation. Now, in 2025, AI is rapidly assimilating across industries, uncovering new applications and efficiencies on what seems like a daily basis.
“Through February, thematics had US$2.4 billion of inflows – the largest two-month haul since 2021.61 Robotics and AI-focused ETFs have been primary drivers, pulling in approximately US$1.1 billion and easily outpacing other popular themes.”
Alternative ETFs will go mainstream
Alternative ETFs which offer exposure to assets such as commodities and digital assets have experienced “record-breaking” adoption in the past year. State Street forecast this would continue as well as their inclusion in client portfolios by financial advisers.
Data shows assets under management in alternatives rose from US$52.6 billion in 2023 to US$148.8 billion in 2024.
“As innovation drives new product development and investors grow more comfortable making room for nontraditional asset classes in their portfolios, we expect alternative-based ETFs to evolve from a niche segment to a mainstream portfolio component by 2026.”
Private and public markets will blur, thanks to ETFs
This trend is driven by Millennials, State Street found, who are demonstrating a love of private markets compared to older generations. Some 42 per cent of Millennials are investing in private markets compared to 17 per cent of Baby Boomers.
This was echoed by financial advisers who said they were utilising alternatives as their top risk management strategy, and is prompting ETF providers to consider ways for investors to access the assets.
“Public will always be public, and private will always be private – but investors can at least gain diversified exposure to each without having to go through multiple traditional, high-barrier channels.”
AUTHOR
Laura Dew
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