DJ Shaw
3 min read
The global ETF market is on track to achieve a historic milestone with flows projected to reach $2 trillion by the end of 2025, according to State Street Global Advisors' latest ETF Impact Report. This remarkable growth comes as innovation in active management and new asset categories transforms how investors build portfolios.
Active ETF strategies are rapidly moving from the periphery to the mainstream of investment portfolios, capturing 32% of all ETF flows as investors seek more dynamic approaches to navigate market uncertainty, according to the State Street report. This shift toward active management is pronounced in fixed income, where investors are looking beyond traditional high-yield options to areas like bank loans and collateralized loan obligations.
"The gap between adoption and opportunity suggests that ETFs are still in the early innings of their evolution and their role in portfolio construction is poised to grow even more in the years ahead," wrote Anna Paglia, executive vice president and chief business officer at State Street Global Advisors, in the report.
Active ETFs have seen extraordinary momentum, with global active fixed-income ETF assets reaching $350 billion as of December 2024. State Street projects this figure will double to $700 billion by year-end 2026 as investors seek real-time adjustments to changing market conditions.
"As global central banks pivot from rate hikes to rate cuts, investors are re-evaluating bond positioning and leaning on active ETFs for real-time adjustments," wrote Michael Arone, chief investment strategist at State Street Global Advisors, who co-authored the report with Matthew Bartolini, head of SPDR Americas research. This trend spans global markets, with active fixed-income ETFs growing 33% in the Asia-Pacific region last year and European inflows reaching $2 billion in 2024.
The search for yield has catalyzed growth in specialized fixed-income categories. High-yield bond ETFs hold $118 billion in assets, while CLO ETFs have rapidly expanded to $54 billion. By 2026, these securitized credit products are expected to collectively surpass traditional high-yield bond ETFs in total assets.
Digital assets and thematic investments represent another major growth area. Global crypto ETF assets surged 255% year over year to reach $127.7 billion in 2024 following regulatory advancements.
Meanwhile, AI-themed ETFs are driving record flows for thematic investments, with $2.4 billion collected in just the first two months of 2025. Nearly half of these flows ($1.1 billion) came specifically from robotics and AI-focused ETFs.
