Exchange-traded funds (ETFs) have been a staple of investors’ portfolios for decades, and for good reasons. They give investors the opportunity to own various types of securities in a single fund, usually within one category or sector — providing diversification and lower costs, because many of them are passively managed.
But these days, investors seem to be broadening their horizons from vanilla ETFs (namely, those that aim to keep things simple by investing in a fund that tracks a widely recognized market index) and moving toward ETFs with a bit more spice.
As of November 2024, the year-to-date net inflows for U.S.- listed ETFs was $915 billion, setting a new annual record, according to data from VettaFi. But which ETF categories are likely to capture investors’ attention heading into the new year?
Here’s a look at five ETF categories to watch in 2025.
5 ETF categories to watch in 2025
These days, investors have a ton of opportunities when it comes to investing in ETFs. This is due to an increase in investor demand, which continues to push companies within the ETF industry to innovate and keep up, especially when it comes to providing more options in thematic funds like artificial intelligence and cryptocurrency.
About 63 percent of U.S. investors plan to buy ETFs in the next 12 months, up from 37% in the fourth quarter of 2022, according to State Street Global Advisors’ 2024-2025 ETF Impact Report.
But what does all of this innovation, competition and growth in the ETF industry mean for investors? Well, for starters, it means more options when it comes to your portfolio.
Here are five ETF categories to keep an eye on in 2025.
1. Cryptocurrency ETFs
Cryptocurrencies have been on the rise in 2024 as investors continue to bank on President-elect Donald Trump’s victory and his support of the crypto market. Bitcoin, specifically, is up 125% year to date, and hit a new all-time high of $102,000 in December.
Aside from a general excitement for digital assets, U.S. regulators have been relaxing requirements for specific ETF models. In January 2024, the Securities and Exchange Commission approved several Bitcoin ETFs, and in July, Ethereum ETFs were introduced.
The approval of these ETFs and the steady rise in crypto prices mark a significant milestone in the broader adoption of crypto as a whole, making it convenient for everyday investors to participate, and the trend is definitely something to keep an eye on.
2. Artificial intelligence ETFs
Long-term investors may find promising opportunities among artificial intelligence ETFs. Like other ETFs, these funds hold a diverse basket of stocks from companies involved in the AI industry, which can help mitigate risk compared to investing in just a few of these businesses.
AI — specifically, generative AI — is now capable of solving complex problems quickly and automating tasks, which suggests huge growth potential for applications in the workplace. The intersection of AI and cloud computing is also gaining prominence, as companies are investing millions of dollars in infrastructure to support AI research and adoption. These investments are expected to drive higher returns for their stocks, especially for companies that innovate beyond basic AI infrastructure.
AI ETFs often hold shares of major tech companies pursuing AI, such as Microsoft, Alphabet and Nvidia. While these tech titans have all seen significant growth recently, the performance of a given AI ETF will depend on the specific stocks it holds and how much of the fund is allocated to top performers. Be sure to read the fund’s prospectus to learn more.
3. Equity ETFs
Aside from thematic ETFs, traditional equity ETFs still hold a top spot in institutional and individual investors’ portfolios and span a wide spectrum.
Traditional equity ETFs are known for their ability to give investors exposure to stocks of all kinds. This ensures a diversified portfolio without having to invest in individual stocks. Not to mention, the fees associated with ETFs are generally lower than other types of funds.
The diversity of stocks within this type of fund, along with their cost effectiveness and performance (many passively managed ETFs have outperformed actively managed funds over time) make the classic equity ETF a good bet for long-term investors looking for solid returns over time across a broad range of stocks.
4. Fixed income ETFs
Another popular category of ETFs is fixed income. These ETFs hold bonds and other debt securities. Bond funds (ETFs), specifically, are made up of a range of bonds including Treasurys, corporate bonds, mortgage-backed securities and more.
Bonds and bond funds are known to attract attention during lower interest rate environments because when interest rates fall, bond prices rise. Older bonds offer higher interest rate payments and become more valuable because they provide better returns than new bonds that are issued in the current rate environment.
As the Federal Reserve continues to lower interest rates, investors have been seeking out bond ETFs, and will likely keep doing so.
5. Gold ETFs
Investing in gold has historically been a way for investors to hedge against inflation and protect their money, and today that demand seems to be holding strong.
The price of gold has risen 25 percent year to date and economists forecast it to peak around $3,000 an ounce, according to Bank of America’s 2025 outlook. Global physical gold ETFs (those that invest in physical gold bullion) have had a six-month streak of inflows as of November 2024, adding $4.3 billion in October alone, according to the World Gold Council.
Geopolitical events across the globe continue to play a large role in the demand for gold. As conflicts continue in the Middle East and elsewhere, investors view gold as a safe haven because it tends to retain its value.
How to invest in ETFs
ETFs are one of the easiest and most cost-effective ways to diversify your portfolio. If you’re looking to invest in one (or a few), here’s how.
- Decide which ETFs to buy and how much to invest: Every investor has their own goals and timeline in mind. Consider if any of the above trends or categories align with your long-term goals and decide how much money to put toward ETFs that will hopefully help you achieve them.
- Place the order through your brokerage account: ETFs trade daily on the stock market, just as stocks do. This makes them easy to find on brokerage platforms and cheap to buy. If you don’t have a brokerage account, it often takes just a few minutes to open one.
Bottom line
There are some exciting new themes and trends emerging in the ETF space due to increased investor demand and innovation from ETF companies competing with one another. These trends include some newer categories, like AI and crypto, but equity ETFs and fixed income still remain top choices in investors’ portfolios. Gold might also be a good investment option if you’re looking to hedge the value of your investments with a precious metal that typically maintains its value over time.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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