ETF Edge - “You’re never wrong if you follow the money” 11/3/25

Episode Date: November 3, 2025

The ETF industry is pacing ahead of schedule for yet another record year of inflow. But exactly where that money is flowing could surprise you… and potentially inform you investment decisions for 2026.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for you, the investor.

I'm your host, Dominic Chu. Now, overall, the ETF industry is set for another record year of inflows. But where those funds and flows are going might actually surprise you. Here's my conversation with Annapalia, the chief business officer over at State Street Global Advisors, alongside Todd Rosenbluth, the director of research over at VETify. I want to start perhaps with you, Todd, for just a quick state of play on how you think things are developing within the ETF marketplace right now. What exactly are the things that have stood out the most to you as we are now about 10 and a half months or so? so into our 2025 year?

Well, as of the end of October, we had $1.1 trillion of net inflows into the year. Now, I'm going that precise because we are roughly $100 billion off of net inflows as a record, two months ahead of schedule. So that was, we hit $1.12 trillion for all of 2024. Said another way, 2025 has been the best year. seen for the ETF industry on an individual product level on equity on fixed income we've seen gold we've seen crypto it's hard to find an ETF that's out of favor with investors and it's a great time to be an ETF investor and uh this is an interesting time for sure because of the record levels

that we've seen flow into the ETF business from your perspective as the chief business officer of one of the biggest issuers of ETFs out there in terms of what has stood out to you out to you, where exactly are you seeing the most development happen within ETFs and where exactly is the investor traffic going towards as we close out 2025? Sure. That's a good question because we need to divide between secular trends and new trends. Looking at the secular trends, we always follow the money because money never lies. Low-cost beta has been attracting almost half of the new flow.

in the industry so almost 500 billion dollars of new money into this industry are now captured by S&P 500 exposure sectors so single basis points exposure to segments of the markets and then we are looking at new trends new trends are all around income digital assets crypto currencies income but also private assets so that type of innovation that is going to complement and supplement the low-cost exposure to the market. Just how quickly, Anna, if I could follow up, just how quickly are those other parts of the market growing for ETFs?

You mentioned things like digital assets and cryptocurrencies, you mentioned some of the commodities stuff that's going on, some of the other product innovations around private credits or income generation strategies. Where does State Street see the most activity? Where is the most innovation coming from to meet that investor and trader demand? Well, you know, we have been really vocal about private assets because we do believe that

there is a need for investors to diversify and then receive access to private segments of the markets. Our story has always been around democratization, so opening the doors for investors to really participate in the growth of the markets. So we have done a number of partnerships. We are partners with Blackstone, we are partners with Apollo, we are partners with Bridgewater. And we have seen these products, whether in CLOs or private credit or giving exposure to the all-weather strategy from Bridgewater, really accelerating in terms of flows.

Our all-weather ETF has crossed the $600 million and it's on track to hit a billion dollars in the first 12 months of its existence. We have also seen our, you know, private, our public and private asset ETF, registering a very healthy flows in the month of October, which to us signals an appetite from RIAs or other investors to really participate in the growth of private credit. So to us this is, this is an acceleration of the new trends. Now we also need to recognize that markets have been really strong. So in the last few months, I would say after Liberation Day, investors have been wearing

risk on heads, which has really accelerated the development of these new trends. Now, Todd, it's interesting because for many of these strategies, they're not straight-up S&P 500 index following strategies, not even ones that are sector-specific for the S&P 500. They are ones that are, I wouldn't call them frontier type assets, but they're ones where they're relatively new to the broader range of retail investors out there and even some institutional investors on the RAA front. From a fee perspective, Anna mentioned how the low-cost theme has been something that they've seen develop quite a bit over the course of this year. How much is that fee story resonate with traders and investors when it comes to higher, say, volatility or higher potential

return type instruments like the ones we had just talked about? So Anna covered it well. There's two ends of the spectrum. There's the low cost and crowd, people who are very fee conscious. And so SPYM, which is one of the S&P 500 ETFs that State Street offers, is about to cross a key milestone of $100 billion. It's on the cusp of that. It's seen strong inflows in 2025. So have some other S&P 500 based products from Vanguard and from I shares. But investors are willing to pay a little bit more. for the complement to their portfolio. So Bitcoin-oriented ETFs are priced at a premium to what you'd find for S&P 500-based products. We've seen the private credit-based products, again, a similar higher premium because you're providing access to an area of the marketplace that is harder to obtain. And that's the last time I was on with you, we were talking about the simplified private credit ETF PCR.

That's another example of ETFs that are helping to innovate within this space. There's room for both low-cost products and products that are a little bit more complicated, offering you a unique area. And then, of course, there's actively managed ETFs, some of which charge a higher premium. Now, Todd, to follow up on that point, at what point right now do you feel as though we are in terms of the game, innings, so to speak, for just how much investors and traders in some of these newer types of ETF products with newer strategies will be willing to look beyond some of the basis points that are charged in fees towards the underlying strategies and the performance. And when will we get to a

point? How far are we away from a point where investors are going to be saying, hey, you know what, for some of these cryptocurrency type tracking products, for some of these private credit products, I really am going to pay attention to just how much in fees I'm paying that impact my return overall? So I think if it's a relatively simple strategy, tied to an index you're familiar with, or it's not even an index. So S&P 500 or gold, GLDM is among the cheapest of those gold ETFs that's gaining traction. Fees matter. For other areas and other asset classes, thematic strategies, for example, come to mind. We've seen strong interest in thematic ETFs that are charging 50 basis points, 65, 75 basis points. NUKZ is a nuclear energy ETF, for example.

that has seen a lot of popularity this year, and it's benefiting from that AI trend, but a more complementary way of getting exposure. So I think fees matter if you're building a portfolio of core strategies and nothing else. If you're complementing that with other areas, alternatives, thematic, even actively managed strategies, it matters what's inside the portfolio

much more than just how cheap this portfolio is. Anna, one of the things, that a lot of folks have been paying attention to these days, with markets kind of at or near these record high levels for not just the S&P, but the Dow and the tech-heavy NASDAQ as well, is just how much of this is a momentum play on those key parts, the most heavily parts of the market that are weighted in the index. I think technology, I think consumer discretionary, and I think of communication services as those kind of three, the three that stand out the most. from your perspective, seeing the flows that you've seen,

is that something that has durability, or do you feel as though this so-called broadening out trade is lending at least some people at the fringes to go beyond that towards this kind of rebalancing element of trying to find other sectors that may be due for a so-called catch-up trade? Well, the catch-up trade, I mean, you framed it really well. I think that the momentum is definitely playing a role.

How would you not want to participate in the growth of AI technology? Everybody has been waiting for the cycle to change from growth to value. I don't think it's happening just yet because of the momentum that is really fueling, there's a big index, these big sectors that are powered by AI and technology. I don't think that the rebalance trade is going to happen until we see a signal that from the market indicating a slowdown in these big trends. Because for as long as AI continues to build on that momentum, it's going to be really harder for investors to understand.

You need to step away. Now is the right time to step away and diversify. You know, the entire concept of momentum is really interesting because you are telling people to step away from something that they love, from something that is producing the outcome that they want to see, at a point in time where the stock, when the sector, when the industry is really hot. So I do think it will take a little bit of a market correction. It would take a couple of cycles of earnings calls and earnings results

are showing a slowdown into these trends, into these sectors, for investors to really start spreading out. Now, I don't know, I mean, markets have been so strong and continues to be so strong, We have seen signals of the SMP 500 crossing 6,900 points. There are analysts that predict that the SMP 500 is going to hit 7,000 points, 71,000 points before the end of the year. The same with the NASDAQ 100, the reaching all-time highs. So when markets are so strong, it's really hard for investors to spread out horizontally.

I think it's going to happen, probably not this year, but at the beginning of next year, there would be much more focused about the diversification. Todd, to follow up on that point, if you are looking for those initial tea leaves or those signs that we could see it perhaps some kind of a down draft to the market overall, what exactly would we be looking for out of the marketplace right now? And I say marketplace specifically because at the, at least at this taping, this particular show,

the government is still shut down. We still don't have data coming out of the government, but for tiny bits and pieces, the CPI this past month being the exception. What exactly are the investors out there kind of keying a little bit more on thematically from a market's perspective, from an ETF perspective, that get them to feel as though they may want to reposition ahead of a potential bigger event that happens? What exactly would we be looking for? Well, we've seen some of it.

So the Healthcare Select Sector Spider-ETF, XLV, which has been actually, out of favor for much of the year started to return to favor in October, both from a performance standpoint on the underlying stocks, as well as flows going in to that ETF. So it still has net outflows, but it started to see a pickup. We've seen stronger financial results from some of the healthcare, the leading pharmaceutical companies that reported results last week. Healthcare tends to be a more defensive sector. So we're watching to see if people continue to gravitate towards that as a way of diversifying away from some of those sectors like technology that you touched on. And Anna, one of the biggest benefits to having folks from a company like State Street

from other companies that are massive ETF managers is the insight we get into the industry dynamics that are developing. You penned recently a very interesting op-ed type story, if you will, about just the pivot that State Street is making. Everybody knows them for ETFs. We all kind of know the sector spider products and everything else. But you're making a pivot towards addressing more of the needs on the mutual fund side of things right now, which is very curious for me because it seems so everybody

for the past two decades has been trying to gravitate away from the mutual fund format into more of the exchange-traded fund format. What exactly is driving state streets desire to be more actively participant, of actively participating in mutual funds as opposed to the ETFs that you guys have been known so much for over the course of the decades? And what exactly is driving that particular move? Well, Dom, this is a case where two things that can be true at the same time.

We are not departing from the ETF wrapper. We still believe that the ETF technology is, the most efficient technology in this market. But we also recognize that the ETF technology is not really the appropriate wrapper for everybody. The reason why I've been so vocal and so passionate about it is because, in my view, the retirement industry is not benefiting from the innovation that the ETF industry is bringing to the market and benefiting from.

And the reason for that is structural. So think about regulation, think about technology, think about how these pension plans overrades. 401 plants cannot buy ETFs. 403B plants cannot buy CITs. As a result of that, you have a big segment of the retirement industry, around $4 trillion in assets, that are invested in index strategies. So pension plans want to embrace index strategies, but the framework is very fragmented. You have to go across different legal wrappers, whether it is CITs, target date funds,

mutual funds, ETFs for some, like my IRA is invested in ETFs, my 401k plan is not. And the enemy of efficiency is fragmentation. So for us, it's not a conversation of ETFs, mutual funds or entering the mutual fund space. But given that the SEC is now giving an ability, hopefully soon, hopefully when the government reopens, giving an ability to asset managers to have different share classes of the same vehicle, we have been working on creating a mutual fund share classes of our ETFs. That is going to give the pension industry an ability to have the same type of index, in the

exposure that they want, that they seek under the same efficient cost-effective umbrella. So we want to respect the wrapper, we want to respect the technology, but we want to build something that can be operated at scale so that this industry can benefit from everything we love about mutual fund and everything we love about TTIF. Now Anna, you must have, you and your team at State Street must have done an extensive amount of market research investor demand surveys and whatnot, to come to this strategy at least, to try to develop mutual fund type products that mimic some of the innovative ETF strategies that are already out there. What exactly do you think that demand is like?

And just how much would the retirement community embrace some of these ETF type strategies in a mutual fund format because taxes aren't really an issue? when it comes to the mutual fund format versus ETFs like they are for traditional investors as opposed to retirement-based investors? That's right. This is a really good question because we have done a lot of work. We have done a lot of research. And I want to go back to something that Todd said a few minutes ago,

which is for some strategies, fees are really important. For other strategies, fees are not important. So if you think about the speculative, of criteria, the items that are really important for investors. What problem are we solving here? Because in the end, if we don't produce products that solve a problem, we are not doing our job. And investors look at a number of really defined the criteria.

So how much does it cost to get that exposure? Content, what type of exposure? And three, what type of access do I get? When it comes to the decision, of mutual funds versus ETFs or building this strategy around a mutual fund share class of an ETF. We really looked at all of these angles. So we are going to, I mean if we do this right, which we will, because we have been studying

this for many, many months, we will be able to offer something that is cost effective because it takes advantage of the size and scale of our ETF business. We now have $1.7 trillion in ETIF assets. So we do have the power of scale. We also have the power of content because we have hundreds of strategies that today we are offering through ETIPs. And once you combine content with cost, you have something that investors may benefit from. And that includes retirement assets.

I mean in the end, we are also laser focus done to you. because this is what catches the attention. This is what we watch every day on TV. Our markets are doing, our companies are doing. We are so focused on today that we may lose sight of tomorrow. Am I going to retire? When am I going to retire? Am I going to retire with dignity?

And how hard is my money working against those goals? So we want to build an engine. We want to build an infrastructure that really allows pension plan and plan participants to benefit of our financials. to benefit from the beauty of the Fs, the content and the innovation of ETFs, with the costs that can be compressed through size, scale, and technology. It's interesting, Todd, to get to your point on this, we've spoken a lot, not just on this show, but in various parts of the ETF industry,

about just how much of a game changer it could be when we actually see ETF share classes get greenlit for these mutual fund companies. We haven't explored as much the reverse, right? What Anna is saying, that some of these ETF providers may actually be looking for mutual fund-type share structures, if you will, to address this. How much do you think that this is going to be adopted by other ETF managers, whether they be passive indexes or active ones, to try to convert to a mutual fund-type product to satisfy some of that retirement investor demand? So I think this is a big thing for asset managers to figure out how to support both the mutual fund community with their ETFs and the ETF community with their mutual fund strategies. There's a lot more firms that have lined up to move their mutual funds into the ETF area and arena.

But there's firms like State Street, like FM investments, that has filed to offer the strategies in retirement plan. So it's really exciting. This is something we're watching for 2026. and I'm excited to see what Anna and Team at State Street bring to market. And Todd, one of the other aspects that we had mentioned before is the tax aspect of it, which is why retirement plans maybe are more suited towards things like mutual fund products. How much are the current investors today who are at least eyeing retirement or actively approaching it itself, retirement, going to look at some of these mutual fund type products

because they don't have to worry as much about the tax implications as other investors say an ETFs do. So I think investors that are looking towards mutual funds in this environment are doing so because that's the choice that's available to them. I don't know that as many people are voluntarily choosing a mutual fund relative to an ETF when they're side by side and they're both available. But because mutual funds make up the majority of the retirement programs that Anna was talking about, mutual funds are the way for ETF oriented companies to get exposure to that and to meet investors where they are. So some people are in the ETF space

if they're building their portfolios themselves and are in more taxable accounts. If you're in a retirement program, mutual funds is the game to be a part of. And Todd, before we let you go, one final question for you, what do you think is going to be the thing that drives most of the market activity

in the first quarter of 2020? what types of themes will be the most key on for the first quarter? So I do think we're going to see if we head into the end of the year where a concentrated or market cap-weighted approach continues to win out, I do think investors are going to look in the beginning of 2026 towards how do they diversify? How do they make sure that they're not letting their winners run too much? And so I think we could see a more equally weighted approach or other sectors outside of technical. gaining a lot more traction in the new year ahead. All right.

And Anna, for you, as the chief business officer of a massive ETF issuer, what exactly would you be looking for thematically or catalyst-wise in the first quarter of next year to see how markets develop for ETFs in 2026? Yeah, we will look at signal. So just like thought said, I'm looking at 2025 and 2026 as being a very different years because to me 2025 is all about momentum and concentration into trends like technology, AI innovation. 2026 is going to be the resurgence of the concept of diversification.

So we will look at the flows going into our sector ETFs because when you follow the money, you are never wrong. So we look at investor sentiment and we measure investor sentiment by looking at what's sector so they are going to be buying. And if we see positive flows into sectors outside of, you know, the classic financials or industrials, we know that that trend towards diversification is happening. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Todd Rosenblut, the VETify continues with us now. We've spoken a lot, Todd, Todd, about share,

for ETFs from say mutual fund providers, just how big of a deal is this going to be and just how much movement can we expect on the ETF share class front for mutual fund companies in 2026? So this is something that we're watching for 2026. The SEC has started the process to allow companies to add a share class. They started with dimensional funds.

That's the first firm. that's leading this charge. We expect that in the first quarter of 2026, we will see the beginning. We'll see ETF share classes available for a handful of mutual funds. And then throughout 2026, we're going to see more firms increase their opportunities here, bring ETF share classes in. But there's a lot of heavy lifting that still needs to be done for this to happen. and even though asset managers have set the stage for approval to begin to do so,

I think a lot of eyes on the industry or from the industry are going to be on dimensional funds and those first other firms that come to market to learn some lessons. And then this is probably going to be a bigger deal in 27, well, in terms of money moving into it. 2026 is going to set the stage for it. 2027 is likely when we're going to see a lot more of the action. Now, Todd, just from your expert opinion, your perspective on this, we know that you're not a regulator at the SEC. For goodness sake, the SEC, as of this podcast, is still closed for business right now, so to speak, during the government shutdown. But you mentioned the 2026 kind of initial stages, the 27 when we really start to see the ramp up.

In 2026, when do you actually see kind of like that first wave, if you will, of those ETF share classes coming out? Is there a timeline that you can estimate based upon who you've spoken to in the industry, the types of sources that you kind of interact with on a daily basis? What exactly do we think? Do we think it's first quarter, second quarter, maybe mid-year towards the back half? What exactly does that timeline look like, at least for right now? So we do think it's going to be the first quarter. And so we had VETI, are hosting a conference in March of 2026, the Exchange Conference.

And we believe by then we will have a handful of individual products that are out, that are ETF share classes of existing mutual funds. And then I think we're going to see more products come to market in the second and third quarters of the year. But it's going to be more in 2027 when we start to see the flows. All right. Speaking of flows, Todd, one of the things that you keep a close eye on over at VETify from a research perspective is just how those flows evolve over the course of time.

Can you take us through what you've seen so far in 2025 as the biggest kind of takeaways from the flow show, so to speak? And then what exactly is, in your mind, going to maintain momentum into 2026? And where exactly are you starting to see some shifts develop, some maybe a movement away from conventional or conventional wisdom-type trades into ones that haven't been the momentum-based ones over the course of the past 12 months? So a few things in there. So right, we're at $1.1 trillion of net inflows were on the cusp of a record being set for a calendar year. We've seen low-cost S&P 500 index-based products. So Vanguard 500 VOO has already crossed $100 billion of net inflows. The only one to ever do that beforehand was Vanguard 500 VOO that did it the year beforehand.

We've seen IVV, which is the I-Share's version of this. We've seen SPYM, which is a low-cost state street-based product. That's to be expected, although I think the amount of money that's going into low-cost, S&P-500-based products, is a relative surprise to me. It's even stronger than I would have expected. But we've also seen throughout the year actively managed ETFs. So DYNF, which is in I-Share's U.S. equity ETF, that's actively managed, has seen more than $10 billion of money flow in during this year.

It's among the top 20 overall flows or flow gatherer or asset gatherers this year. So we're starting to see actively manage ETFs continue to gather assets. We think that's a trend that we'll keep watching. Certainly if we get those share classes that we talked about that are going to be actively managed. But what we caught our eye this year, or actually caught our eye in October relative to what's happened this year, is we've seen a bit of a shift. I touched on it briefly in our earlier comments. We saw healthcare, the healthcare sector spider ETF,

XLV, return to favor. We saw DIA, which is a Dow Jones Industrial Average ETF from State Street, Garner much stronger assets in the month of October than it did beforehand. Those two strategies, XLV and DIA, are not technology-oriented. In the case of healthcare, it's obviously not technology oriented.

DIA has more exposure to financials and industrials than technology stocks. That's a sign to me that investors are looking outside of the mega cap growth stocks. Will they be right to do so? Will that persist? That's something I'm keeping my eye on. All right. And then for 2026, as we kind of get set to maybe wind down the year, so to speak, on what's happening this year, what exactly do you think thematically will be?

the biggest driving force behind the ETF business in 2026? What are the storylines that you think are going to be the ones that we talk about the most akin to the AI trade or some of the momentum based trades that we've seen in 2025? Well, momentum is always a friend of the market. And I think that so AI and AI adjacent strategies, nuclear energy was one that's been very popular. this year that's not just the technology stocks that's AI related. But I do think we're going to see investors look again towards an alternative way of investing than market cap oriented approach, whether it's a smarter way, focusing more on the constituents of an index-based strategy, focusing on individual factors like free cash flow from a quality standpoint. I think there's

also going to be continued interest in actively managed ETS. There's always an ETF that can benefit, or 10, that can benefit from a trend that's going on. And I think the ETF industry is poised for another year of tremendous growth in 2026. All right. A lot of investor demand out there for exchange traded funds and other type of products as well. Todd Rosenbluth at Vettify. Thank you very much for joining us. We appreciate it. Now, that does it for the ETF Edge podcast. Thank you very much for listening. Join us again next week or just head over to etfedge.cnbc.com. Over the last few decades, technology has transformed our world in amazing ways. Through it all, InvescoQQQEF has connected investors to the forefront of innovation.

Access the future today with InvescoQQQ. Let's rethink possibility. There are risks when investing in ETFs, including possible loss of money. ETF risks are similar to those of stocks. Investments in the tech sector are subject to greater risk and more volatility. even more diversified investments. The NASDAQ 100 index includes the 100 largest non-financial companies listed on the NASDAQ. An investment cannot be made directly to an index. Before investing, consider the funds, investment objectives, risks, charges, and expenses. Visit investco.com for a prospectus containing this information. Read it carefully before investing. Investco

Distributors, Inc.