9 Predictions for ETFs in 2025 and Beyond

Trade War Fears

The ETFs in Focus study found that just before the Trump administration’s April 2 "Liberation Day" tariff announcement that sent markets tumbling, 55% of investors said they felt informed about the risk to their portfolios.

Furthermore, despite all the talk about inflation, the study found that even before the announcement, all types of investors perceived tariffs and trade wars to be the greatest risk to portfolios in the coming 12 to 18 months. Self-directed investors were the most worried at 47%, followed by advised investors at 44% and hybrid ones at 37%.

Fear over unexpected inflation was more subdued, with 35% of hybrid and advised investors and 33% of the self-directed expressing concern about rising prices.

ETFs as Portfolio Essentials

The study also found that investors still see ETFs as essential portfolio building blocks during times of volatility. That sentiment was strongest among individual investors with upward of $250,000 in investable assets: 65% agreed that ETFs help improve overall performance, well up from 59% in 2022. 

The uptick in the percentage of investors who believe ETFs make them a better investor was also notable, jumping to 62% from 54% last year.

Investor Approaches to Risk

Although surveyed investors differed when it comes to their preferred strategy for managing risk, most said they were sticking to approaches that have been known to prevail in the long term. Many are taking a more traditional approach in their asset allocation and making sure they are diversified; others are preferring not to make any sudden moves in anticipation of changing market conditions.

Overall, nearly half of all investors are managing risk in their portfolios by avoiding high-risk investments and/or diversifying. More than a third are also managing risk by holding cash or cash equivalents.

Advisor Strategies

The study revealed that two clear strategies are emerging in how financial advisors are helping clients navigate perceived threats. Just as many are likely to use alternative investment strategies as they are to hold cash amid the uncertainty.

When it comes to alternatives, half of financial advisors said they were allocating to alternative investments/strategies to manage portfolio risk. And 79% plan to increase their allocation to alternative ETF strategies over the next year or so. Since 2022, alternative ETF assets under management have grown from $27.6 billion to $148.8 billion at year-end 2024.

Forty-seven percent of advisors said they were increasing allocation to cash or cash equivalents and/or were diversifying across asset classes.

The two top drivers significantly influencing financial advisors’ decision to incorporate or increase allocation of alternative investments/strategies into their clients’ portfolios are “reduce exposure to public markets” and “alternative sources of return.”

This is not surprising as the acceptance of a 60/40 portfolio continue to wane, according to State Street.

ETF Trends

The State Street Global Advisors ETF Impact Report 2025–2026 explores emerging ETF trends shaping the industry.

1. The global ETF market takes in $2 trillion in 2025. 

In the first quarter, the global ETF market took in $431 billion, putting it on track to reach $2 trillion by year-end, topping last year’s recording-setting $1.5 trillion. State Street expects Middle Eastern sovereign wealth funds to play a notable part in ETF demand. Another tailwind is the continuing migration from mutual funds, as more investors recognize ETFs’ potential structural advantages, namely their liquidity, tax efficiency and cost.

2. Global gold fund assets will crack $500 billion by 2026.

Investors are increasing their allocations to gold in the face of inflationary pressures, general economic uncertainty and geopolitical risks. Banks, too, are pushing growth in gold investing. So far this year, gold ETFs have recorded inflows of $21 billion, bringing assets under management to $345 billion. Coupled with rising gold prices, State Street expects global gold ETF assets to nearly double near term and surpass $500 billion by next year.

3. Global active fixed income ETF assets will hit $700 billion by year-end 2026.

Active fixed income ETF assets under management stood at $350 billion as of Dec. 31, driven primarily by U.S. demand. State Street expects institutional investors in Europe and Asia to propel the asset class’s next expansion wave. It expects momentum to speed up over the next year and a half, reaching $700 billion in AUM.

4. Bank loan and CLO ETF assets will overtake traditional high yield by 2026.

In their relentless search for yield, investors are turning away from traditional high-yield bonds toward the expanding market of bank loan and collateralized loan obligation ETFs. As of March 31, bank loans had $118 billion in assets under management, CLO ETFs $54 billion.

However, SSGA expects this gap to lessen in 2025 as both institutional and retail investors turn to CLO ETFs with their generally higher credit quality relative to standard high-yield bonds, lower duration risk and income-generating potential.

CLO ETFs are on a roll, their assets having swelled from $120 million in 2020 to some $46 billion in 2024. SSGA expects the assets of bank loan and CLO ETFs to exceed that of traditional high-yield bond ETFs.

5. AI will lead thematic ETFs to record flows in 2025.

Thematic ETFs, especially ones centered on artificial intelligence, are on pace to post record flows this year. Through February, they had recorded $2.4 billion of inflows, the biggest two-month haul since 2021. Robotics and AI-focused ETFs have been primary drivers, pulling in some $1.1 billion and easily outpacing other popular themes.

State Street expects other thematic ETFs to benefit as capital flows into high-growth innovation-oriented sectors. With AI at the helm, it says, this year could be a defining year for thematic investing.

6. More AI-powered ETFs will run on blockchain.

Artificial intelligence is not only an investment theme but is changing the way investments are managed. Last year, ETFs that used machine learning models to support asset selection, risk management and portfolio rebalancing gained momentum. State Street doesn’t expect robots to replace funds managers, but says integrating the technology into portfolio construction and monitoring could offer efficiency benefits worth watching.

7. ETFs will play a major role in blurring private and public markets.

The historical line between public and private — between being open and accessible and being generally reserved for institutions and ultra-wealthy investors — is starting to blur, driven by growing investor demand, particularly from millennials. Sixty-nine percent of millennials invest in alternatives, compared with 56% of Gen Xers and 46% of baby boomers.

The generational gap is even broader in private markets specifically. Some 80% of advisors say alternatives play a valuable role in long-term planning and retirement planning strategies.

State Street expects ETFs to help meet this demand by providing investors easier, less encumbered access to private markets.

8. Alternative ETFs go mainstream.

Institutional investors have leveraged alternative investments for additional diversification, hedging and return-enhancing potential, while an excess of barriers have impeded individual investors from reaping the same benefits. That’s changing.

Alternative investment ETFs, which package exposures like commodities and digital assets into a more accessible investment wrapper, have experienced record-breaking adoption in the past year. Menawhile, alternative strategy ETFs are finding their way into more portfolios. State Street expects alternative-based ETFs to evolve from a niche segment to a mainstream portfolio component by 2026.

9. ETF share classes of mutual funds will reshape retirement.

State Street predicts the emergence of a dual share-class structure for mutual funds and ETFs that will bring many of ETFs’ advantages to retirement savers, including defined contribution plan participants. With widely anticipated exemptive relief from the SEC that will allow a mutual fund to offer a class of ETF shares and ETFs to offer a class of mutual fund shares, more than 50 investment managers have already filed for relief.

If granted, this new share class structure has the potential to reshape 401(k) investment options. This means retirement savers would potentially benefit from lower costs and a broader range of investment strategies and asset class choices, while still investing in familiar mutual fund structures.

State Street says direct ETF investment in 401(k) plans remains a longer-term possibility for the industry at large, but predicts the new multi-share-class structure could help the retirement industry expand its offerings now, delivering benefits of scale to shareholders, while maintaining the same operational model that recordkeepers and employers have come to rely on.

Credit: Chris Nicholls/ALM