TLDR: Thematic Exchange Traded Funds (ETFs) with a focus on Artificial Intelligence are projected to achieve unprecedented investment flows in 2025, according to State Street’s latest research. This surge follows strong performance in 2023 and 2024, driven by investor confidence in AI’s transformative potential across various sectors and a significant shift in investor demographics towards alternative investments, particularly among Millennials.
Artificial Intelligence (AI) is set to propel thematic Exchange Traded Funds (ETFs) to record inflows in 2025, marking a landmark period for AI-focused investment strategies. This projection comes from State Street’s latest research, detailed in its ‘The ETF Impact Report 2025-2026’. The forecast follows a robust performance in 2023, which saw AI-themed ETFs surge in 2024 as investors increasingly sought to capitalize on the next wave of technological innovation.
Early indicators for 2025 reinforce this trend, with thematic ETFs collectively attracting US$2.4 billion in inflows during the first two months of the year. This figure represents the largest two-month inflow since 2021, highlighting a significant acceleration in investor interest. Within this, Robotics and AI-focused ETFs have been particularly dominant, drawing approximately US$1.1 billion and leading all other thematic sectors.
This substantial surge is attributed to investors’ keen interest in harnessing AI’s transformative capabilities across diverse industries, including healthcare, finance, and manufacturing. Furthermore, related themes such as future security, enhanced connectivity, and exponential processing power are also benefiting from the broader shift towards AI-driven growth.
“With AI at the helm, 2025 could unfold as a defining year for thematic investing,” stated State Street in its report. The fund manager emphasized that AI is not merely an investment theme but is actively revolutionizing how investments are managed. The report noted that ‘Last year, AI-powered ETFs – those using machine learning models to support asset selection, risk management and portfolio rebalancing – picked up momentum.’ While AI is not expected to replace human fund managers in the immediate future, its integration into portfolio construction is demonstrably increasing efficiency and opening new avenues for growth. State Street anticipates the launch of more such AI-powered products as the underlying technology continues to iterate and improve.
A crucial factor underpinning this shift is a change in investor demographics. State Street predicts that alternative ETFs will become mainstream, largely driven by the Millennial generation. The asset manager’s findings indicate that over two-thirds of Millennials (69%) are now investing in alternatives, a significantly higher proportion compared to Gen X investors (56%) and Baby Boomers (46%). This generational shift is blurring the traditional distinctions between public and private markets, fueling a rising demand for alternative investments and prompting ETFs to offer broader access to asset classes that historically had high barriers to entry. In line with this trend, State Street Global Advisors recently introduced a private credit ETF in the US, providing investors with diversified exposure to both public and private assets without navigating conventional, high-barrier channels.
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As 2025 progresses, these converging trends are expected to fundamentally redefine the investment landscape for both institutional and individual investors, ushering in a new era of innovation-led growth.
