Chief Investment Strategist Michael Arone and Head of SPDR Americas Research Matthew Bartolini share their bold predictions for the global ETF market — from which segments are positioned for growth to strategies they expect to take the industry by storm. They also address what recent macro and market headwinds mean for investors.

What are your predictions for global ETF AUM and the total number of ETFs five to 10 years from now?

Matthew: Last year, I predicted assets would reach US$43 trillion by 2034. If we’re sitting at US$14 trillion right now, I see us as halfway to that figure — let’s say US$28 trillion, give or take — within the next five years.

Globally, the number of ETF strategies is also only going to grow. But it’s difficult to predict a specific number because we’re seeing a ramp up of multiple product and strategy variants or expressions launching at once. For instance, a fund might have a July series, an August series, and so on.

Or a pair of funds may launch that are virtually the same in their intended exposure, but one targets a 10% drawdown and the other, a 20% drawdown. There might be a group of funds that provides the same options overlay or active strategy, but one is based on the S&P 500® and another on the Russell 2000.

So, the number of strategies is difficult to predict — but I can say with confidence that I think people will be shocked by how many ETFs are in market 10 years from now.

Given these growth predictions, which client segments do you think will account for a significant amount of growth in AUM?

Michael: From my perspective, I think four segments will lead the way in the ETF industry’s rapid expansion:

1. Mass affluent investors — households with $1-5 million of investable assets — are growing at an incredible clip. And they’re the segment most in need of financial advice. Why? Because they’re not always able to access some of the more complex investment products out there. As a result, they are prime buyers of ETFs — which can still give their portfolios the liquidity, reasonable costs, transparency, and tax efficiency they need.
2. Retail “do-it-yourselfers” are another fast-growing group, particularly among younger cohorts. For younger investors, information is more readily available than it’s ever been before. They’re also more comfortable accessing portfolios online through user-friendly apps — so, they’re more likely to use tradable vehicles like ETFs to build portfolios.
3. Middle-income and high-net-worth investors in emerging markets are a third fast-growing segment of the wealth management market, especially in regions like Latin America and Asia Pacific. I think this investor group’s wealth and use of ETFs will grow quickly in the next decade because they tend to adopt technology and innovative products at a much faster rate and may forego current accessibility in favor of newer technology.
   
   For example, the growing middle-class and high-net-worth populations in emerging markets didn’t use landlines in their homes — instead, they went straight to smartphones and other smart devices. In the same vein, they’re bypassing older legacy investment products within their markets, like mutual funds, in favor of more modern or innovative products like ETFs.
4. And finally, institutions. They’re already a large portion of the market. But with the proliferation in ETF numbers and more diverse exposures becoming available, as Matt mentioned, I think institutions will continue to look to ETFs to hedge risks through specific exposure or options strategies, amplify exposures, manage liquidity needs, and manage cash components.

Can you get a little more specific on the role you expect institutional investors will play in the ETF market’s evolution?

Michael: You know, it’s interesting. We noticed that the bank loan category, a floating rate product, had been growing exponentially over the last year or so, at a time when the Fed was expected to cut rates. That seemed unusual. So, Matt and the research team did some work and uncovered that, given the growth in private credit investments and the exposures that many of our institutional clients had, they were beginning to use ETFs in those categories as a way to gain liquid exposure with a similar risk/return profile as their private credit.

Going forward I expect — given the number of products, risk and return exposures, and the options that are written on a lot of these products — that institutions will continue to use ETFs in ways that allow them to manage their liquidity, hedge their risks, amplify exposures, and manage their cash needs.

Matthew: I think the institutional category is such a melting pot of different investor segments. You have pensions, foundations, endowments, hedge funds, asset managers, and ETF strategists that are managing models. Then you have large sovereign wealth funds and insurance plans. The list goes on and each has different use cases and motivations for using ETFs — and I think they’ll all underpin the future growth of this ETF industry.

At the same time, I might look at institutional usage as cyclical. Over the past 20 years, we’ve seen a broad shift to asset management insourcing — a trend represented within some pensions and endowment plans. But lately, they have been using more ETFs — especially as costs keep decreasing.

For some mandates, institutions may begin to view the cost-benefit analysis of having their own staff manage and trade a portfolio of securities as less attractive than owning, for example, an S&P 500 ETF for 2bps as part of a liquidity program or beta replication strategy. And then there’s the way in which the broader growth of ETFs paves the way for insurance companies to use the products, which should help drive ETF AUM even higher.

Let’s talk macro for a moment. What macroeconomic factors do you see having the biggest impact on ETF flows over the next five years?

Michael: In many ways, the investment landscape and the asset management industry have been impacted by some structural forces over the past 40 years.

Think about 1982 to 2022 — an environment largely categorized by falling interest rates, benign inflation, a peacetime dividend between the world’s militarized superpowers, and globalization. Whether due to the pandemic, the populist movement, or the current environment, a lot of that has shifted.

There’s more deglobalization. The US is no longer the world’s singular superpower, and others are testing its global influence at a time when it is backing away and becoming more domestic focused.

All this results in greater geopolitical risk, elevated interest rates, and stickier inflation. What worked under that previous 40-year period — traditional 60/40 portfolios, for example — will be far less likely to work going forward. And, you may need to modify allocations to more diverse market segments as a result.

Matthew: From my vantage, as Mike alluded to earlier, demographics play a big role. Aging demographics will require more financial planning, which will likely lead to an increased use of model portfolios as a one-stop shop for asset allocation. Given that ETFs continue to gain market share within models broadly, as the use of models grows, so should assets in ETFs. Fundamentally, I think we’ll see a bigger shift out of traditional stock/bond portfolios and into managed solutions, particularly as investors age and become more tax sensitive.

We also have to appreciate that, for younger investors, ETFs are not a new investment vehicle to learn and understand. In some cases, ETFs have been around longer than the younger segments of investors have been alive. For Gen Z and many millennials, ETFs are a traditional investment — I think that familiarity will help propel market growth.

We’re already seeing that preference for the ETF vehicle reflected in flows, regardless of what’s happening in the market. In 2022, for example, when stocks and bonds were both down, we still saw sizable inflows into ETFs. And even at the start of 2025 when equities sold off, ETFs still had record flows in Q1. I think we’ll likely see that continue over the next decade.

Early adopters of ETFs prioritized cost efficiency, liquidity, and transparency. As ETFs continue to evolve, what do you see as the next major catalyst of global adoption?

Matthew: As more sophisticated use cases for ETFs emerge, I think access, customization, and efficiency — what I call ACE — grow increasingly important and I expect will be a major catalyst of adoption globally.

Let me break it down:

• Access: Investors want more transparent access to markets that are hard to reach. Think private markets, which I’m getting asked about all the time.
• Customization: Investors want products that deliver a greater level of customization to their portfolios in a very focused, transparent way.
• Efficiency: As more complex investment use cases emerge, investors need to know how efficient a fund will be in providing more complex return streams or delivering the outcomes they seek.

Michael: When most investors think about their investment portfolio, they’re thinking about risks and returns. And so, from my perspective, I think that these will be the next catalysts for how folks allocate.

Matt just talked about that outcome orientation to help tackle investors’ objectives. Under a lot of the scenarios I’ve been describing — globalization, peacetime dividends, falling rates, and benign inflation — most assets have done exceptionally well. If these things are beginning to shift, returns, exposures, and outcomes will become that much more important compared to a fund’s costs, transparency, or liquidity profile.

In the past, investors were asking questions like, “What exposure am I getting at what cost? At what tax efficiency? And at what liquidity profile?” But as the ETF industry has opened itself up to more complex products and a more dynamic market, investors will start to ask “What return am I getting for what level of risk?”

Matthew: If investors are looking to better identify returns and risk patterns, I think they could end up feeling a bit frustrated. A lot of active and more complex strategies are emerging, but the ability to provide a back test or show a proxy of historical returns is often limited by regulatory constraints.

That means investors will need to evaluate an ETF’s ability to deliver the desired outcome based on other factors. That’s where the credibility of the asset manager or fund issuer matters. Faith in the ETF’s ability to perform as expected will depend, in large part, on the perceived credibility of the manager. Without a back test, the manager’s expertise and ability to educate on the fundamental drivers or philosophical beliefs that underpin the strategy will set investor expectations on the range of outcomes. I think that will be true whether it’s a brand-new strategy or an investment approach previously
accessible only to a certain investor base.

Michael: Absolutely. The point is that risk and return will become a far more important part of the ETF conversation moving forward, especially given the choices today.

Given the macro shifts you talked about and the more recent market volatility, how do you anticipate investor preferences or allocations shifting?

Michael: In the past 30 years, we’ve seen a massive transformation in how capital is allocated. In 1996, US public-listed stocks reached their peak at a little more than 8,000. Today, that number is closer to 4,300. Just a few decades ago there were only about 1,900 US companies that worked with a private equity investor. Today, that number is more than 12,000. In the past decade alone, private credit has quadrupled and is now roughly the same size as listed high yield fixed income bonds.

The ETF industry will evolve along the same lines. In many ways, the industry has democratized investing for a broader group of investors — giving them access, a lower cost point, greater liquidity, and better tax efficiency. Going forward, I think we’ll begin to see a transformation that moves ETF allocations in a direction similar to how capital is allocated today.

Given the structural changes Matt and I highlighted, I think more ETFs will be launched and assets will amass in areas that are more outcome oriented. Investors will ask more questions, like, “What outcome am I trying to achieve?” They may be motivated to get a return that protects their capital or is greater than inflation.

I also think we’ll see investors allocate more money to real assets, private markets (both equity and credit), real estate, and alternatives with ETFs.

What about the elephant in the room… tariffs? What effect could they have on the global ETF industry?

Michael: On April 7, the average stock was down 26% from its 52-week high. At the time of this interview, the stock market is in decline — a reaction to President Trump’s Liberation Day reciprocal tariff whiplash and China’s retaliation.

The way I see it, there are a lot of potential bad outcomes from the Trump administration’s attempt to transform the global trading system — rising prices, slowing growth, and increasing unemployment. I don’t believe Trump’s trade policy will balance the trade deficit, raise revenues, restore manufacturing jobs, eliminate fentanyl from entering the country, or end illegal immigration. That’s just smoke and mirrors. Political posturing. But if Trump’s reciprocal tariffs do result in a global reduction in trade barriers, then that would be a positive outcome for the global economy.

I assume it will take several months or even quarters for the Trade War to play out. With capital market volatility likely to remain elevated, I’m encouraging investors to consider safe havens like gold, defensive sectors, services versus goods, dividend growers with stable earnings, and alternatives to traditional 60/40 portfolio allocations.

Matthew: Tariffs are meant to be used as a bargaining chip across different countries to create more balance and order within a global trade dynamic. But increasing the economics of trade may have a second order effect of reducing financial investment in US assets. Consider the fact that the US’ share of global GDP is about 20%, but our share of global market capitalization is roughly 70%, well above our GDP. And the US’ share of globally listed ETF assets is about 78%.

What happens if geopolitical tensions brought on by more mercantilist trade policies all of a sudden create firmer boundaries within investor preference and choice? For example, will some European investors no longer want to buy US equities or US-listed exposures? Or maybe cross-listing suddenly becomes much more difficult in Asia-Pacific because regulators may view the US as not working in the most collaborative manner.

Mike talked about the peacetime dividend earlier. One of its byproducts is this idea of global coordination. But if you lose global coordination and become more insular, what are the ramifications? Will a European pension plan no longer want to seed a fund from a US asset manager because locally the politics are such that investors are advocating for boycotts? Or maybe aggressive trade policies toward key US allies will reduce the number of foreigners who want to hold US equities. And less capital flowing into the US could impact the strength and market value of the asset class as well as ETF AUM growth.

Trade policies that are very restrictive and domestically focused on increasing US GDP — which, remember, only represents 20% of the global GDP — could be detrimental to investments, specifically US-listed ETFs, that make up a much greater share of the markets. As a result, perhaps European-listed ETFs, and other locally domiciled ETFs, start to gain more flows or become a bigger market because investors will be buying on their local exchanges.

Let’s talk global markets, then. Which regions do you believe are on the cusp of major ETF adoption? And what factors are driving this?

Matthew: I see Japan as the market best poised for ETF adoption. Japan is sitting on a pile of savings excess, and so local regulators are incentivizing citizens to invest some of that savings through increased investment limits and tax allowances into Nippon Individual Savings Accounts (NISAs). This will push savings into markets where they can potentially invest that money.

If we think of the US as historically having always been at the forefront of market expansion, I think Japan is going to try and play catch up because they have so much in savings. And, that could spur consumption and wealth transfers due to the country’s aging demographic base.

Will the next phase of ETF growth be driven more by product innovation or by new investor demographics and emerging investor needs?

Michael: I actually think it will be the intersection of all three. When ETF providers attempt to launch products focused on just one of these things, it often falls flat.

So, asset managers first need to identify the investment need, followed by the challenge we’re trying to solve for. Afterward, we have to determine how we create an ETF structure that may be different or innovative compared to what’s already out in the marketplace. Finally, we have to evaluate the emerging trends and what types of investors would buy this particular asset exposure in an ETF.

When you do any of these in isolation, it can result in a flawed vehicle or an ETF that doesn’t meet the expectations of either the investment community or the provider.

I’m interested to hear what role(s) you see the use of technology and data playing in shaping the next generation of ETFs?

Matthew: You know, it’s easy to say we should use blockchain and distributed ledger technology with ETFs. There’s one currently doing that in Europe. But ultimately, it’s a nice-to-have, not a must-have. A lot of the buyers of these ETFs operate within heavily regulated entities — large, global, systemic, influential banks — so I think there’s a limit to how much new technology can be applied within the walls of older infrastructure in the near-to-medium-term.

But I do think we could see technology integrate more seamlessly with portfolio modeling over the next several years.

Right now, there’s too much product and too much noise in the industry. So, it’s not surprising that one of the questions I get asked most is where a specific product belongs in a portfolio, especially when it comes to alternatives and other more sophisticated ETF strategies. I can imagine a technology solve for this. An investor could pose this question to AI, which could show you exactly what role an ETF could play, even if it’s a brand-new product.

If technology could pinpoint the exact role an ETF could play in a portfolio — and the outcomes it could potentially provide from a risk, return, income, and volatility perspective — that could spur ETF adoption as a whole.

Michael: To Matt’s point, when Markowitz considered Modern Portfolio Theory, he was limited by computing power. But as tech has evolved, so have investment strategies and model development.

I think that technology will ultimately help us break down more traditional structures, like the 60/40 or the 9-style box, to develop more interesting portfolio outcomes: income-oriented, options-oriented, and others. It all goes back to Matt’s point about how technology could help model that completely, or at least make those allocation decisions easier.

Matthew: But we’re definitely not there yet with current AI platforms. My friend did his fantasy baseball prep using a popular AI platform and used the outputs to build his roster. He’s currently in last place. So, I wouldn’t trust it to build an investing portfolio quite yet.

If you had one prediction about the ETF industry in 2025 and beyond, what would it be and why?

Michael: This is a tough one. But I’d say that right now, broadly speaking, active ETFs make up roughly 9% of the AUM but almost 40% of the flows. And so, my bold prediction for the immediate future and beyond is that active inflows will either be equal to — or greater than — index ETF flows. I don’t know if that’s big and bold, but I think that’s the direction we’re headed.

Matthew: I think that’s a good one. Along the same lines, active ETFs have largely been a US phenomenon. But I think we’ll see active ETFs outside the US gain significant market share in 2025 and beyond, as other markets start to catch up to what the US has been able to do and as global asset managers replicate US learnings and success.

US-listed ETFs make up 80% of global active fixed income ETFs. The other 20% outside the US has been gaining traction. So, I think it will increase significantly from here, not just within active fixed income but equities and alternatives too.

Last question. What’s one key piece of advice you’d give investors as they position their portfolios for the next five years?

Michael: The bond market experienced a bull market from 1982 to 2022, largely driven by falling rates and benign inflation over that timeframe. Ever since 10-year Treasury yields broke through 4%, which was back in September of 2022, investors have either expected rates to fall or flirted with the idea of extending maturities to lengthen duration in their portfolios. And this has been as volatile as investing in the stock market.

If rates and inflation are higher, more volatile, and stickier than anticipated, stocks will do fine. Provided the economy is growing and earnings are growing, they’ll remain a good inflation hedge. That’s proven to be the case this time around.

But bonds may struggle after a very prolonged period of bullishness. If that’s the case, investors need something to complement their stock portfolio. Bonds may or may not be that, since they’ve shown the same risk and return characteristics over the past four decades.

It may be wise for investors to hold a bit more real assets — such as real estate, infrastructure, commodities, natural resources, or precious metals like gold — in their portfolios. Depending on what they choose and how they build it, they can generate income from those allocations as well.

Investors don’t have to give up all the income that bonds generate, but should rates be stickier and inflation higher than expected, their real asset portfolios should do well. In these volatile, early days of 2025, having a greater allocation to a diversified basket of real assets would have benefitted investors. And I think that may be the case going forward.

We’ve seen fewer and fewer investors continue to use the 60/40. But those still using it might consider a 60/30 and 10% allocated to a diversified portfolio of real asset ETFs.
 

Matthew: With so much noise and information out there, it can feel impossible to make sound investment decisions. In the US alone, investors have 4,000 ETFs to choose from. So, especially when more complex products emerge, investors should take the time to understand the product, who the manager is, and the role they play in the product.

I do think there’s a fine line between charlatans and geniuses. What I mean is, when there’s a lot of success in the marketplace, there can also be a lot of imitators who bring new products to market that may be more marketing intelligent than investment intelligent.

My advice to investors? Don’t just buy the shiny new toy because its new. Instead, frame all investments, new or old, around how a solution may help build a portfolio that can preserve wealth, generate income, and compound over time in a risk-managed way.

Michael: For me, it comes down to keeping it simple. Investors want to get lucky on these rare, one-off stocks that boom — like NVIDIA or Apple. That’s not reality for most of us. I believe with conviction that there’s a four-part formula for investors looking to build wealth over the long-term:

1. Embrace the benefits of diversification.
2. Keep costs reasonable.
3. Keep taxes efficient.
4. Invest 20% of your total income every year.

If you do those four things over the long-term — 20, 30, 40 years — past stock market performance shows us that you’ll likely have a sizable nest egg in the end that you can use to retire, leave a legacy, do philanthropic work, or whatever it is your goal might be.

Matthew: That’s absolutely true. While nothing is guaranteed, history shows investors have to withstand some down periods to generate positive returns over time — that means staying in the market for the long haul.