The ETF market is in the middle of a historic boom in 2025.
US listed ETFs saw inflows jump by 32% compared to the previous year, and the momentum is only accelerating with January 2026 clocking in as the strongest January on record.
But underneath this massive growth, the landscape is shifting, and we are seeing a massive.
Surge and actively managed funds billions pouring into thematic ETFs with wildly dispersed returns and also a sharp rotation into defensive strategies as geopolitical and inflation fears linger.
Well joining us this morning to break down these record and influences as well as some of the risks and where the smart money is heading in to is Brian Walsh, Head of Advice and Planning at SoFi.
Good morning, Brian.
Thank you so much for joining us.
Well, US listed ETFs secured a 32% bump in inflows last year, capped off by a record breaking January of this year.
So tell us what actually stands out to you right now and tell us whether you expect active ETFs to dominate the market going forward.
Yeah, good morning.
First, thanks for having me.
Um, you know, I really think the, the aspect that stands out to me is the growth in ETFs is really fueled by the expanded use case where ETF issuers are innovating to solve more problems for investors.
When it comes to long-term investors, we're seeing more and more investors shift from just passive to actively managed funds as a part of their core holdings.
We're also seeing a shift to thematic ETFs to add some satellite exposure, whether that be sector base or cryptocurrency or those types of asset classes.
And then on the flip side, we're also seeing ETFs being utilized by traders, whether that be implementing inverse or leverage strategies, um, or even just making thematic plays that align with their thesis.
So the expanded use case is really what's helping drive the growth in ETFs over the last few years, and especially over the last, you know, 3 to 6 months.
And as you mentioned, thematic ETFs are clearly dominating here, but with opportunity also comes risks, Brian.
So I do want to ask how can investors actually navigate some of this extreme dispersion that we're seeing and what would you say are some of the biggest risks for people parking their money in these hyperfocused funds?
Yeah, I think when it comes to thematic ETFs, it's really important to understand first and foremost, is this going to be actively managed or is this going to be a passive index.
If it's actively managed, I think your due diligence would be similar to what we've seen in the mutual fund world for years, if not decades, where looking at the track record of the investment manager, looking at the team.
Um, and really leveraging third party rankings to see how their process and how their performance matches up.
If it's more of a passively managed fund, then you really want to focus on what the core identity of that fund is.
For example, AI is something that we've seen a pretty big dispersion, uh, from a return perspective.
Is the ETF, even if it's passive, is it focusing on AI enablers that are, you know, really going to benefit from the hardware and those types of things, or is it focusing on AI adopters, which are going to be the leading companies that are getting real business value from adopting this type of technology.
And I think that's why you're starting to see a pretty big dispersion.
Um, depending on what the focus of even an index would be.
Um, so it's important on both sides to really look at what matters, whether it be the manager or whether it be the specific focus, and if that aligns with your goals.
And finally Brian, before I let you go on this Wednesday morning, we are seeing a relief rally across the globe when it comes to the equity markets and oil pulling back.
But we're also seeing a very clear risk off tilt right now.
Geopolitical tensions as well as inflation and interest rate uncertainty has pushed investors to dividend as well as income focused ETFs.
So how are investors actually utilizing these funds as safer alternatives to say traditional bonds?
Yeah, and I think this is something that's really interesting, and we saw this happening, you know, several months ago, with credit spreads tightening, um, really kind of the shift away from the classic fixed income funds.
The two places we're seeing this right now is alternative income funds, for example, um, we have our theta ETF which essentially uses treasuries as collateral and then writes options, spreads against it to generate higher levels of income.
Uh, we also see it in dividend stocks, and these are just going to be alternative sources to not only generate higher levels of income right now, but then also be compensated for the risk that investors are taking on.
I think it's important though, as you're exploring, you know, these types of vehicles, really understanding that generally they're going to be riskier than if you just invest in fixed income or if you're invested in a money market fund.
Um, so you want to make sure it fits well within your overall portfolio.
Most of the times it's going to be satellite exposure.
It's not gonna be your core fixed income, like in a 60/40 portfolio, you know, we're not going to use dividends, stock, ETFs, or even alternative income as that 40%.
It would be a small portion of what that overall fixed income exposure would be.
Well, Brian, we will have to leave it there for today, but thank you so much for joining us.
We appreciate your time and all of your insights.
Yeah, thank you so much for having me.
