December 2025 is shaping up to be an eventful month for Exchange-Traded Funds (ETFs), marked by a remarkable rise in derivatives usage and more than $500 billion now linked to complex ETF strategies. This surge signals a major evolution in how investors deploy ETFs within the modern financial landscape. With the current fiscal year on track to become a record-setter for equity ETF flows—despite rapid shifts in investor behavior—the momentum behind ETFs is unmistakable. In this article, we break down the hottest trends in ETFs, derivatives, and thematic investing as discussed by Todd Sohn, Senior ETF and Technical Strategist at Strategas Asset Management, during a recent conversation at the New York Stock Exchange.
The discussion opened with a sweeping look at the extraordinary growth within the ETF world, driven by substantial net inflows and a steady launch of innovative funds. The renewed interest correlates with the broader bullish tone in equity markets, particularly since April 2025. Investors are beginning to seek more diverse and sophisticated strategies beyond traditional passive vehicles, marking a clear transition away from the “ETF 1.0” era that dominated the first two decades of ETF evolution. In its place, derivative-linked ETFs are taking center stage as investors aim to enhance equity exposure while simultaneously mitigating risk through tools such as covered calls and downside protection.
Todd points to a significant rotation underway: a move from cyclical sectors like financials and industrials toward more defensive corners of the market, including healthcare and energy. This shift suggests some investors may be locking in profits from this year’s high-flying cyclical names. Notably, such cautious repositioning isn’t necessarily bearish—historically, defensive rotations often precede periods of healthier, more sustainable market expansion, as expectations cool and price movements stabilize.
Artificial intelligence (AI) emerged as one of the most prominent themes in the interview, underscoring its outsized influence within the S&P 500. AI-linked giants such as Meta, Apple, Nvidia, and Amazon continue to play an enormous role in driving index performance. Todd urges investors to be mindful of overexposure to these megacap names and recommends diversifying into managed futures or real asset funds—areas typically less correlated with AI. This balanced approach can help reduce the risks inherent in leaning too heavily on a single high-growth theme.
The conversation then pivots to thematic ETFs, which are experiencing a renewed wave of interest after years of heavy outflows. Investors are approaching thematic opportunities with more precision, favoring areas like nuclear energy, defense, and deglobalization strategies. This marks a strategic shift away from previous speculative, high-risk innovation themes and shows a broader willingness to incorporate multiple, complementary themes alongside AI exposure. According to Todd Sohn, this evolution points to a growing acceptance of thematic diversification as a serious portfolio tool.
As 2026 approaches, the outlook for thematic ETFs remains optimistic—especially as AI continues to dominate as a core market driver. The increasingly complex landscape requires investors to be more strategic in managing both performance and risk. By combining thematic diversification with derivative-enhanced strategies, investors can build more resilient, adaptive portfolios capable of handling the market’s next chapter.
In summary, December 2025 is poised to be a defining moment in the ETF space, capturing a wider shift in sentiment and investment strategy. With ETF offerings becoming more sophisticated, investor focus rotating toward defensive sectors, and thematic investing expanding in relevance, 2026 is shaping up to be an energizing year for portfolio builders. The insights shared by Todd Sohn underscore the need for intelligent navigation in this new era, advocating for a blended approach to promote sustainable portfolio growth.
By embracing both the rise of derivative-driven ETF innovation and the expanding universe of thematic strategies, investors can position themselves to thrive in an increasingly complex financial environment—setting the stage for a new era of smart, forward-thinking ETF investing.