How has ETF demand from institutional clients shifted over 2025 and the beginning of 2026?
ETF demand from institutional investors accelerated markedly over 2025, supported by a combination of rising structural demand and geopolitical shifts. Global ETF assets under management reached a record $18 trillion (Trackinsight), confirming that ETFs are being used as a core allocation tool rather than a tactical overlay.
Equity ETFs continued to dominate, accounting for over 75% of total assets, while fixed income ETFs gained traction, given that the rate environment remains supportive and the rise of active fixed income ETFs.
In the United States, higher interest rates and a more mature ETF ecosystem drove inflows toward lower-risk fixed income exposures, such as cash and government bond ETFs. In contrast, European investors were compelled to assume greater duration and credit risk to generate yield, resulting in a different composition of fixed income flows.
Geopolitics also played a decisive role. Europe experienced a strong rebound in ETF demand amid developments related to the conflict in Ukraine and the announcement of the German fiscal stimulus plan.
This translated into a ninefold increase in global net inflows into European ETFs compared with the previous year. Heightened concerns around strategic sovereignty further reinforced allocations to thematic ETFs, particularly in defence and strategic industries.
Are you starting to see any new trends in the types of ETFs that investors are favouring?
In terms of trends, thematic investing gained further momentum. Defence emerged as the dominant theme in Europe, representing 36% of total net inflows, while US investors favoured domestic defence exposure.
Technology remained a key driver of inflows, with $54 billion of net inflows globally, three-quarters of which originated from the US. New themes also gained visibility, notably the nuclear renaissance, offering differentiated indirect exposure to artificial intelligence and data centre growth.
Emerging market ETFs experienced a notable acceleration in flows, supported by strong performance, while cryptocurrencies attracted significant interest, particularly in the US, where inflows were 12 times higher than in Europe.
At the same time, ESG ETF demand slowed sharply. In Europe, investors reallocated from Paris-aligned benchmark ETFs toward climate transition benchmark strategies, while SFDR article nine ETFs faced net outflows in favour of article eight products. This shift reflects a growing investor preference for ESG solutions with lighter constraints.
What is your outlook for ETF markets going into 2026?
The outlook for ETF markets heading into 2026 remains highly constructive. Early indicators are already supportive, with flows recorded during the first eight days of January already running at 75% of the levels observed for the full month of January 2025. This momentum suggests that ETF assets under management will continue to grow exponentially.
Investors tend to favour ETFs as a vehicle to take tactical positions in the market, while macro themes are increasingly shaping asset allocation decisions. Defence, technology, geopolitics, and strategic autonomy have become central drivers of investment flows.
Innovation will continue to reshape the ETF landscape. In the US, active ETFs now outnumber passive ones, facilitating broader adoption by traditional asset managers. ETF issuers are making growing use of active ETFs to deliver fixed income and options-based strategies. The rapid expansion of buffer ETFs also highlights growing demand for outcome-oriented solutions offering downside protection.
Overall, ETFs are well positioned for 2026, as investors increasingly value their transparency, liquidity, and cost efficiency in navigating complex and evolving market environments.