Forget the summer cinema season — the trends unfolding in the ETF industry thus far have been a must-watch affair. The VettaFi Voices — Head of Research Todd Rosenbluth, Investment Strategist Cinthia Murphy, and Head of Sector and Industry Research Roxanna Islam — provided a trailer on the current state of the ETF landscape and what's to come.
It's been another strong year of flows for ETFs (north of $700 billion), and at the current rate, could surpass a record year set in 2024.
"I admit that I expected this to not be as strong a year, in 2025, coming in after the record year. But the equity markets have rebounded, enthusiasm has rebounded, and risk taking has occurred after the weakness in the beginning of the year," Rosenbluth admitted.
One of the prevailing trends this year has been the record number of active ETF launches, emphasizing increased investor demand for active strategies. In terms of overall flows, passive is still in pole position, but active flows are creeping up faster in its rearview mirror.
"Last year was a good year for active ETFs, this year could be even better," Rosenbluth said.
Embracing Complexity
One of the standout themes was the number of options-based funds hitting the market. It's an area once reserved for only sophisticated investors with a deep understanding of the capital markets. Leonardo da Vinci once said that "simplicity is the ultimate sophistication." ETF providers are now doing their own version of financial artistry, creating products with sophisticated strategies, but making them simple and digestible for any investor.
"What I think is cool is that investors are embracing this complexity," Murphy said, but also cautioned that due diligence is still a necessity.
But what's ultimately driving more investors into these complicated products?
"So a lot of this is about volatility," Islam noted, explaining that investors who want to participate in the market but are wary of volatility will appreciate these defined outcome strategies. "These strategies tend to work best when there is some volatility, and I think it also has to do with uncertainty."
Investors looking to supplement their income portfolios could also benefit from options-based funds. With interest rate cuts looking more imminent, fixed income investors may also want to consider derivative income options inherent in these ETFs.
"These are also more useful in volatile times," Islam added, mentioning that the income generated from these options-based ETFs is different from dividend payments. Overall, they add more alternatives for fixed income investors to shore up a portfolio that's primarily comprised of bonds.
"A lot of product innovation, and it's exciting to see," Murphy said of these options-based funds.
Private Gets More Public
One of the areas seeing greater interest is in the realm of private equity, but more specifically, private credit. Once an area where only institutional and accredited investors play, private credit investing has made itself more available to the public thanks to the advent of ETFs.
One of the new funds catering to this burgeoning space is the SPDR SSGA IG Public & Private Credit ETF (PRIV). Other funds, new this year and existing previously, were outlined as examples of how investors can get private credit exposure.
What's Ahead?
Lastly, Murphy provided a peek of what's to come, including the mention of crypto ETFs, growing interest in alternatives, more active growth, and other trends — summarily, there's "a lot going on, and it should keep us busy for the rest of the year."
There was a lot to unpack in the 30 minutes allotted, and the only way to view and listen to all of it is to watch the replay here.
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