State Street signals ‘exponential’ ETF market growth in 2025

New market research from State Street has indicated ‘exponential growth’ is on the horizon for the Australian exchange traded fund (ETF) industry, with 25 per cent growth expected this year.

The ETF provider’s analysis indicated that the ETF market’s funds under management (FUM) would jump from AUD$240 billion to AUD$300 billion by the end of the year, and net inflows could surpass AUD$50 billion.

It also suggests three global managers with over USD$100 billion in FUM are set to release their first product for Australian investors and the local market will see one new coin ETF launched this year.

However, Australia continued to follow in the footsteps of China and Taiwan in terms of year-on-year growth, recording 26 per cent in 2024; China maintained its status as the fastest growing ETF market with 75 per cent year-on-year growth, with Taiwan following at 54 per cent.

“The Australian ETF market continues to mature and investor adoption is higher, experiencing nearly 30 per cent CAGR over the last ten years,” State Street’s Head of ETF Solutions, APAC, Ahmed Ibrahim, said.

“Last year, the Australian ETF market enjoyed strong inflows, in particular passive ETFs. There were also a number of new entrants into the active ETF space and that trend looks to continue in 2025, where large investment managers who have predominantly run unlisted strategies are adopting the dual access model or opening an ETF share class.

“Throughout 2025, we believe the growth momentum of the Australian ETF market will continue, mainly driven by consumer demand for fixed income ETFs, product innovation, demand for digital assets ETFs and the continued reduction of management fees by ETF issuers which makes investing into ETFs more attractive.

“Of the 10.7 million investors in Australia, approximately 2 million now hold ETFs in their portfolio. ETF investors tend to be younger. However, we are also seeing more sophisticated investors and financial advisors also reap the benefits of ETFs. A growing proportion of high-net-worth individuals are allocating to ETFs via self-managed super funds.”

The analysis also highlighted strong growth across the APAC region in particular with 47 per cent, of which 45 per cent accounted for inflows. Despite active managers suffering through challenging market conditions in Australia recently, State Street found that 78 per cent of the 934 new ETFs on the North American market were presented as active strategies.

“In the US, we expect active ETFs to collect more than 30 per cent of all North American inflows and eclipse the total AUM of USD$1 trillion by the end of Q1,” Frank Koudelka, Global Head of ETF Solutions at State Street, said.

“We predict actively managed ETFs will have the higher percentage of overall launches in Europe, growing to 4 per cent of AUM and 10 per cent of flows.

“Across APAC, growing demand in South Korea will continue to drive the ETF market and see active products make up more than 33 per cent of its total ETF market. We expect that as global issuers continue to APAC and have more focus on distribution, we will see actively managed ETFs rebound at large.”