Following a breakout year in 2023, AI-themed exchange-traded funds (ETF) surged in 2024 as investors sought to capitalise on the next wave of innovation, with State Street forecasting record inflows into the thematic ETF space this year as AI continues to reshape industries at an unprecedented pace.
Through the first two months of 2025, thematic ETFs saw US$2.4 billion in inflows, the largest two-month figure since 2021.
Robotics and AI-focused ETFs have dominated, pulling in around US$1.1 billion and leading all other thematic sectors.
This surge comes as investors look to tap into the transformative potential of AI across sectors like healthcare, finance and manufacturing, with themes like future security, enhanced connectivity and exponential processing power also benefiting from the shift towards AI-driven growth.
“With AI at the helm, 2025 could unfold as a defining year for thematic investing,” said State Street in its The ETF Impact Report 2025-2026.
But according to the fund manager, AI is not just a theme, it’s also revolutionising how investments are managed.
“Last year, AI-powered ETFs – those using machine learning models to support asset selection, risk management and portfolio rebalancing – picked up momentum,” it said.
While AI may not replace fund managers anytime soon, State Street said its integration into portfolio construction is increasing efficiency and providing new avenues for growth.
“As the underlying technology iterates and improves, we expect more of these products to launch in the near future,” it said.
A key driver behind this change is a shift in investor demographics, with State Street predicting alternative ETFs will go mainstream, driven mostly by Millennials.
Namely, the asset manager found that over two-thirds of Millennials (69 per cent) are investing in alternatives compared to 56 per cent of Gen X investors and 46 per cent of Baby Boomers.
The asset manager also noted that the generational shift is blurring the lines between public and private markets, with rising demand for alternative investments driving ETFs to provide broader access to traditionally high-barrier asset classes.
State Street Global Advisors recently launched a private credit ETF in the US, allowing investors to gain diversified exposure to both public and private assets without navigating traditional, high-barrier channels.
Ultimately, as 2025 unfolds, State Street said, these trends are set to redefine the landscape for both institutional and individual investors, setting the stage for a new era of innovation-led growth.
