Top 3 ETF trends that could move markets in 2025
December 27, 2024
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5 min read
The strong economic backdrop in 2024 has been characterized by falling inflation, lower interest rates, and improved corporate fundamentals. With the S&P 500® Index returning over 20% each of the past two years and sitting close to all-time highs, some are asking whether this positive performance trend, and resulting strong flows into U.S. equity exchange-traded funds (ETFs), can continue.
The story is similar for cryptocurrency, which posted another outstanding year of returns in 2024, and newly launched spot-cryptocurrency ETFs amassing over $100B in assets,1 begging the question of what the future may hold for this alternative asset.
Lastly, with the strong investor interest we’ve seen in derivative income ETFs in recent years, curiosity has risen about whether this asset class will continue growing. In our opinion, we believe all three – U.S. equity ETFs, cryptocurrency ETFs, and derivative income ETFs – will continue to be leaders in the ETF industry in 2025. Here are our thoughts on why.
U.S. equity favorability
The U.S. economy, thanks to adept decisions by the Federal Reserve, was able to withstand the significant inflationary shock post-Covid. While most expected the U.S. to spiral into at least a modest recession, by all accounts this was avoided. Adding to that, the election of Donald Trump as U.S. president could also present a positive environment for the U.S. stock market. Trump’s goals to reduce corporate and personal income taxes, his perceived lighter touch on regulation, along and his desire to drive toward peace in Israel and Ukraine are all contributing to the optimism in the markets.
With this potential positive setup for U.S. stocks, we expect investors will have the desire, and additional disposable income, to actively invest in U.S. equity ETFs. Although some headwinds could emerge, such as a return to higher inflation if Trump imposes tariffs, it’s likely this will not be felt in the economy until after 2025. However, we do believe that there will be increased bifurcation between individual company performance that may favor fundamental, bottom-up security analysis from experienced portfolio managers.
With this constructive U.S. economic backdrop, Natixis ETF investors may want to take a look at the actively managed Natixis Loomis Sayles Focused Growth ETF (LSGR). This ETF returned over 40% in the past year, as of Q3 2024. It is managed by Aziz Hamzaogullari, who has over 30 years of investment industry experience and has been managing growth equity portfolios for Loomis Sayles since 2010. The Loomis Sayles Growth Equity Strategies Team, which Hamzaogullari founded and leads, manages over $90B for institutional and retail investors.
Cryptocurrency popularity
In 2024, we observed the SEC’s approval of spot Bitcoin and Ethereum ETFs. This created excitement and optimism in the broader cryptocurrency market, driving up prices in the asset class as a whole. After the SEC raised significant assets from the spot ETF launches in March 2024 to the November election, the support that President-elect Trump has shown toward crypto, in word and deed, has only contributed to a new leg higher.
A few of the actions Trump may take include bringing a more flexible regulatory environment to cryptocurrency and creating a U.S. Government Bitcoin strategic reserve. We also recently saw another Bitcoin first, which is the ability to trade options on spot Bitcoin ETFs, providing more choice and liquidity to markets. All signs point toward more positive developments for cryptocurrency and cryptocurrency ETFs, so we believe 2025 could be another strong year.
Income-oriented options in ETFs
Although our first two trends signal a bullish outlook, with risk-on investors likely allocating to U.S. equity and cryptocurrency ETFs, our third trend is a more conservative one. Over the past few years, we have seen more than $80B flow into an emerging category of active ETFs known as “derivative income ETFs.” These purpose-built products have captured investors’ interest by providing hedged exposure to the equity market, while also paying attractive monthly income generated by options or other derivative products. Having exposure to derivatives in the convenience of an ETF simplifies life for investors and financial advisors – as they would otherwise have to build these allocations on their own by actively trading the underlying derivatives themselves.
Overall, derivative income ETFs can provide a diversified income stream relative to traditional fixed income ETFs, which can be particularly appealing to investors looking to support their retirement spending needs. Natixis has a potentially attractive ETF in this space. The Natixis Gateway Quality Income ETF (GQI) is expected to pay out a monthly distribution in the range of 6–11% annualized and has a current 30-day SEC Yield of 9.21% as of 9/30/24. GQI, which invests in high-quality and durable companies, is also designed to provide uncapped equity exposure with a lower risk profile vs. the S&P 500® Index.
As we look ahead to 2025, nothing is for certain. However, we believe the setup for financial markets and the ETF industry appears optimistic for continued growth.
