Leveling up: what’s next for ETFs

In 2024, the big ETF headlines went something like “ETF assets top $10 trillion” and “ETF flows break the $1 trillion mark.” Today, with one month still left in 2025, assets have surged past $13 trillion and flows already total more than $1.3 trillion. Conversely, mutual fund flows continue to decline in aggregate, likely due to the ETF structure’s growing appeal.

These types of milestones stir the imagination for what the future holds. We believe ETFs will continue to democratize investing, particularly as assets once considered ill-suited for the structure increasingly find their place within it. Let’s explore.

• Alternatives: Known for their liquidity, ETFs are liquifying the traditionally illiquid world of alternatives. With structural innovation accelerating, private credit and private equity ETFs are increasingly available, and many more managers are lining up to enter the market. What was once the domain of sophisticated institutions is now sliced, repackaged, and offered through ETFs. Even a small number of these funds can make alternatives more accessible.
• ETF Share Class: After Vanguard’s patent expired in 2023, more than 70 fund managers sought regulatory approval to expand the ETF structure into active management and to add mutual fund share classes to existing ETFs. This fall, the SEC broke a long-standing market impasse by granting one issuer the right to add ETF share classes to its mutual funds. This decision could spark a wave of launches and drive even greater momentum toward ETFs.
• Leveraged Single-Stock ETFs: Leveraged stock ETFs account for roughly 20% of new ETF launches this year, with most of this surge being single-stock ETFs. These products give investors tools for targeted, short-term portfolio moves, especially in the tech sector, where liquidity, deep derivatives markets, and media attention are strongest. While this dynamic segment expands the ETF footprint, it reflects a different perspective than how we think about investing for the long term and how we approach active management.

The ETF industry now offers access to nearly every corner of the market, and we expect this transformative structure to continue its growth.

Guide to ETFs featured slide of the month (slide 34)

After several years of macro headwinds, thematic ETFs are showing signs of a turnaround. Since June, assets have jumped from $88.5 billion to $118 billion, even as the number of ETFs has stayed roughly the same. Unlike the dramatic surge in 2020, which was fueled mostly by a single issuer, this rally is broader and more balanced, with growth coming from a range of issuers. AI continues to be the biggest beneficiary, but flows into secondary themes like natural resources and infrastructure are notable.