Australia's ETF boom - what to expect in 2025

State Street have released their 2025 outlook report for ETFs which outlines its predictions and the megatrends shaping the ETF market. The report indicates the global ETF market will continue to grow exponentially this year, as we saw in 2024, where the ETF trend exploded and grew across all measures.

Globally, a record US$1.9 trillion poured into ETFs last year, with total assets in ETFs now standing at US$14.7 trillion. Every major ETF market saw inflows of between 20-30%: equity, fixed income, active, passive, commodities, currency and digital assets all enjoyed inflows last year, and Australia was no exception.

With innovation, accessibility, and affordability driving demand, 2025 is shaping up to be another banner year for ETFs in Australia.

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State Street forecasts the Australian ETF market’s funds under management will grow around 25% from $240 billion to $300 billion this year, with active ETF adoption set to continue growing globally and in Australia.

Australia’s ETF market grew by 26% last year, continuing a decade-long trajectory of a nearly 30% compound annual growth rate (CAGR). This was just ahead of South Korea (24% growth) but behind China which has become the fastest growing ETF market globally with 75% year-on-year growth, and Taiwan with 54% growth.

With 10.7 million investors overall in Australia, more than 2 million are investing in ETFs, and an increasing number of high-net-worth individuals are using them within their self-managed superannuation funds (SMSFs).

State Street’s Head of ETF Solutions, APAC, Ahmed Ibrahim says:

“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.”

“ETF investors tend to be younger. However, we are also seeing more sophisticated investors and financial advisers also reap the benefits of ETFs. A growing proportion of high-net-worth individuals are allocating to ETFs via self-managed super funds.”

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According to Jamie Hannah, Deputy Head of Investments and Capital Markets at VanEck Australia, wealth managers are turning to ETFs as the building blocks of portfolio construction. Their combination of low fees, ease of trading, and research-backed strategies makes them an attractive option for both new and seasoned investors.

“The Australian investor profile is also changing. Australians have historically demonstrated a home bias in their portfolios, despite the domestic market representing only a small portion of opportunities available in the global investment universe."

Key predictions for 2025

As we head into 2025, State Street identifies the key trends set to define Australia’s ETF market:

1. Record-breaking growth

Experts predict Australia’s ETF industry will surpass $300 billion in funds under management by the end of 2025. Net inflows are expected to exceed $47 billion, signalling continued investor confidence.

2. The rise of options-driven ETFs

Options-driven ETFs have taken off in the US, with assets already exceeding US$170 billion. Australia is likely to follow suit, as investors seek innovative ways to manage risk and enhance returns. With half of today’s options-driven ETFs launched in just the past two years, this niche is poised for rapid expansion.

3. Shifting investor preferences

Australian investors are broadening their horizons. Historically, they’ve shown a strong home bias, focusing on domestic stocks. But that’s changing; net flows into international equity ETFs skyrocketed by 368% in 2024 to a record $15 billion, more than doubling the flows into Australian equity ETFs. Expect this trend to continue as investors seek greater global diversification.

4. Active ETFs making a comeback

Passive ETFs continue to dominate, however, active ETFs are expected to rebound in 2025, in line with global trends. With more global asset managers entering the space offering specialised strategies, active ETFs could capture a larger share of new inflows.

5. Cryptocurrency ETFs expand

The crypto ETF market is set for further expansion, with at least one new coin expected to be introduced in Australia. Given the growing appetite for digital assets, this could open up new investment opportunities for both retail and institutional investors.

The bottom line

The Australian ETF market is on an unstoppable growth trajectory, fuelled by increasing adoption across wealth managers, SMSFs, and retail investors. Whether it’s the rise of options-driven ETFs, the expansion of active strategies, or the continued push into international equities, 2025 is shaping up to be another defining year for ETFs.