The Evolution of the ETF Industry: 3 Trends Taking Hold in 2025
The ETF industry will undergo major transformations before 2025, with new products and strategies emerging as global assets reached a record $15.1 trillion at the end of November.
The industry boosted nearly $220 billion in net inflows in November, bringing year-to-date net inflows to more than $1.6 trillion, according to ETFGI.
“2025 will be about niche and progressive themes in active ETFs,” said Gavin Filmore, CRO at Tidal Financial Group. “Think emerging technology, renewable energy supply chains, and breakthroughs in health innovation.”
The innovation extends beyond traditional investment methods, with artificial intelligence is playing an increasingly important role in portfolio management and analysis, explained Filmore.
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,” says Jacobs. “Investors love transparency, intraday liquidity, and lower costs. Mutual funds still dominate retirement accounts, but as ETFs make their way into 401(k) plans, the writing is on the wall. “
Structurally efficient and based on options active ETF products show more ambitious goals in terms of portfolio differentiation and risk management, Jacobs explained.
“Our product is going to look and feel very, very different to the wider market,” he added.
The innovation is evident in how capital-efficient ETF strategies and hedging manage market downturns. When markets decline 20%, these new active strategies aim to be down only half as much rather than slightly outperforming traditional active products, Jacobs noted.
This change represents a broader evolution in active management, as companies 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 companies take advantage of new ETF share class structures that allow mutual fund conversion.
There is an appearance Crypto ETFs has helped bridge the gap between traditional finance and digital assets, creating new opportunities for mainstream investors to access this new 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 widest range of users, from the smallest self-directed investor to some of the largest institutions in the world,” said Lavalle.
While on the spot bitcoin a Ethereum ETFs now available, widespread 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 types of clients, Lavalle noted. Some investors see 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 cautious approach to crypto integration, with bitcoin allocations requiring careful consideration of suitability and portfolio fit, according to Lavalle. His research suggests that a 5% allocation provides the best possible 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 such as leverage and downside protection, while also exploring ETFs linked to alternative cryptocurrencies beyond bitcoin and Ethereum.
Based on options a Derivative ETF strategies are increasing as investors face two key challenges in today's market environment, according to Si Katara, founder and CEO of TappAlpha.
The first challenge is generating income in a fluctuating interest rate environment, he explained. Option-based strategies offer an innovative approach to this problem.
“The second problem you're hearing about now as well, is that markets are at an all-time high,” Katara said. “And so investors are like 'it feels frothy – if only there was a tool out there that could help protect my downside.' And guess what's great for solving that problem too.”
Technology makes these complex strategies more accessible, with real-time data analysis helping to manage risk factors such as Delta, Gamma, and market volume in ways not possible before, according to Katara.
The democratization of these strategies through ETFs has removed traditional barriers to entry, he noted. While call strategies involved typically requiring at least $50,000 to implement directly, investors can now access similar strategies with as little as $25 through ETFs.
“It's about meeting the demand for income and managing risk,” Filmore said. “Option-based ETFs — like covered calls and defensive puts — give investors tools to ride out market volatility while boosting yield.”
About 40% of Tidal's platform now includes outcomes-based strategies, indicating growing demand for these products, according to Filmore.
Looking ahead, Lavalle's Grayscale expects the integration of these trends to drive further innovation in portfolio management tools and systems, especially as crypto exposure becomes more mainstream in traditional portfolios.
