ETF Industry Evolution: 3 Trends Take Hold in 2025
The ETF industry will undergo major transformations heading into 2025, with new products and strategies emerging as global assets reached a record $15.1 trillion at the end of November.
The industry booled nearly $220 billion in net inflows in November, bringing year-to-date net inflows to more than $1.6 trillion, according to ETFGI.
“2025 is going to be all about niche and cutting-edge themes in active ETFs,” said Gavin Filmore, CRO at Tidal Financial Group. “Think emerging tech, renewable energy supply chains, and breakthroughs in health innovation.”
The innovation extends beyond traditional investment approaches, with artificial intelligence playing an increasingly important role in portfolio management and analysis, Filmore explained.
As the industry expands, three key trends are poised to reshape how investors access markets in 2025: the evolution of active management, the growing adoption of crypto-focused products, and the rise of complex investment strategies.
The active ETF landscape is transforming beyond simple mutual fund conversions to include new structural approaches, according to Brian Jacobs, investment strategist at Aptus Capital Advisors.
“Active ETFs are flipping the script on mutual funds,” Jacobs said. “Investors love the transparency, intraday liquidity, and lower costs. Mutual funds still dominate in retirement accounts, but as ETFs make their way into 401(k) plans, the writing’s on the wall.”
Structurally efficient and options-based active ETF products are demonstrating more ambitious goals in terms of portfolio differentiation and risk management, Jacobs explained.
“Our products are going to look and feel very, very different than the broader market,” he added.
The innovation is evident in how capital-efficient and hedged-equity ETF strategies manage market downturns. When markets decline 20%, these new active strategies aim to be down only half as much rather than slightly outperforming like traditional active products, Jacobs noted.
This shift represents a broader evolution in active management, as firms move beyond simple stock selection to incorporate structural efficiencies and tax advantages unique to ETFs, Jacobs said. The trend is likely to accelerate in 2025, especially as more firms take advantage of new ETF share class structures that allow conversion of mutual funds.
The emergence of crypto ETFs has helped to bridge the gap between traditional finance and digital assets, creating new opportunities for mainstream investors to access this emerging asset class, according to David Lavalle, senior managing director and global head of ETFs at Grayscale.
“ETFs have once again democratized an asset class for the broadest range of users, from the smallest self-directed investor to some of the largest institutions in the world,” Lavalle said.
While spot bitcoin and Ethereum ETFs are now available, broad adoption faces some near-term hurdles as wealth management platforms work to integrate these products into their offerings, he explained.
Investment approaches to crypto vary among different client types, Lavalle noted. Some investors view bitcoin as a store of value that could replace gold allocations, while others approach it as a growth-oriented technology investment.
Wealth managers are taking a measured approach to crypto integration, with bitcoin allocations requiring careful consideration of suitability and portfolio fit, according to Lavalle. His research suggests a 5% allocation provides optimal risk-adjusted returns in a traditional 60/40 portfolio.
The crypto ETF landscape continues to evolve beyond simple exposure products, Tidal’s Filmore added. Managers are developing more sophisticated offerings that incorporate features like leverage and downside protection, while also exploring ETFs tied to alternative cryptocurrencies beyond bitcoin and Ethereum.
Options-based and derivative ETF strategies are gaining traction as investors face two key challenges in today’s market environment, according to Si Katara, founder and CEO of TappAlpha.
The first challenge is income generation in a changing interest rate environment, he explained. Options-based strategies offer an innovative approach to this problem.
“The second problem that you’re hearing about now too, is markets are at all-time highs,” Katara said. “And so investors are like ‘it feels frothy—if there was a tool out there that could help protect my downside.’ And guess what? Options are great for solving that problem too.”
Technology is making these complex strategies more accessible, with real-time data analysis helping manage risk factors like Delta, Gamma, and market volumes in ways that weren’t previously possible, according to Katara.
The democratization of these strategies through ETFs has removed traditional barriers to entry, he noted. While covered call strategies typically require at least $50,000 to implement directly, investors can now access similar strategies with as little as $25 through ETFs.
“It’s all about meeting demand for income and risk management,” Filmore stated. “Options-based ETFs—like covered calls and protective puts—give investors tools to ride out market volatility while boosting yield.”
About 40% of Tidal’s platform now consists of derivative-based strategies, demonstrating growing demand for these products, according to Filmore.
Looking ahead, Grayscale’s Lavalle expects the integration of these trends to drive further innovation in portfolio management tools and systems, particularly as crypto exposure becomes more mainstream in traditional portfolios.
