5 ETF Predictions for 2025

After hitting nearly 80% of my predictions over the first five years, the past two years are calling into question whether I’m truly the ETF Nostradamus. It’s worth noting that I came extremely close on two of my missed calls in 2024 and I’ll ultimately be correct on a third prediction. Nevertheless, close and/or early doesn’t count as correct in this business. As Oaktree’s Howard Marks recently said, “being too far ahead of your time is indistinguishable from being wrong”. Regardless, my confidence is still intact and I’m optimistic about getting back on track this year. Before I unveil my latest prognostications, I’ll offer the two usual disclaimers: 1) Nothing here should be construed as investment advice. Do your own homework! 2) No excuses, but I always attempt to go out on a limb and make at least a few bold(er) calls. With that, my 2025 ETF predictions…

1) Either VOO, IVV, or Both Will Chop Fees in an Attempt to Capture ETF Crown

Two years ago, I predicted that either the iShares Core S&P 500 ETF (IVV) or Vanguard S&P 500 ETF (VOO) would surpass the SPDR S&P 500 ETF (SPY) in assets. At the time I made that prediction, the asset totals looked like this:

• SPY: $353 billion

• IVV: $288 billion

• VOO: $279 billion

Fast forward two years, and SPY still sits atop the ETF throne (and boy have the markets done well!). Current asset totals are now:

• SPY: $625 billion

• VOO: $594 billion

• IVV: $591 billion

As mentioned above, I have a bad habit of being early on my predictions. At least that’s my excuse when I miss on one. While I do think there is a very real possibility that VOO, IVV, or both surpass SPY in assets this year, that’s not my prediction here. Instead, I believe that either or both will chop their already minuscule fee in an attempt to capture the individual ETF crown from SPY and put the other one in the rearview mirror. Current fees look like this:

• SPY: 0.0945%

• VOO: 0.03%

• IVV: 0.03%

Because of its unique structure as a unit investment trust, SPY doesn’t really have the ability to chop fees. That’s a big reason why State Street launched SPLG, the SPDR Portfolio S&P 500 ETF. SPLG’s expense ratio is a paltry 0.02%, but the ETF only has $54 billion in assets (worth noting it was in the top 10 of all ETF inflows last year, however).

With BlackRock and Vanguard battling for overall ETF supremacy, I predict one or both will look to chop fees on their flagship ETF. Matching SPLG’s fee is a no-brainer, but could either go to 0.01%? I think it’s a possibility. You might be asking why Vanguard or BlackRock would just willingly give up roughly $60 million (or more) in revenue by doing this. Well, there is a certain cachet that comes from having the top ETF by assets. I think the competition between BlackRock and Vanguard is that intense. Holding the individual ETF asset crown is like winning the Super Bowl. Plus, both ETFs can take advantage of securities lending (something SPY cannot do), which provides a growing revenue stream as assets in the products increase.

2) The Year of Crypto ETFs

If you follow me in any capacity, you already know to expect at least one crypto ETF prediction. I’m going to do even better than that. I’m going to give you TEN crypto ETF predictions, all wrapped into one. Much of this is based on what I expect will be a markedly different approach to crypto by the Trump administration than what we witnessed under the Biden administration. The political winds are already shifting. Crypto-friendly Paul Atkins is set to succeed Gary Gensler as SEC Chair. There will now be a “crypto czar”, a role which will be filled by Silicon Valley veteran David Sacks. A crypto advisory council is being established underneath Sacks, with industry executives helping to shape the administration’s policies towards digital assets. You get the idea. Gary Gensler always referred to crypto as the “Wild West”. Under the Trump administration, I think that is exactly what we’ll get from an ETF perspective. Literally, ANYTHING is possible. Here are my 10 crypto-related ETF predictions, some more obvious than others:

1. Spot bitcoin ETFs surpass physical gold ETFs in assets (I think obvious, unless the price of bitcoin collapses)
2. Spot ether ETF options trading is approved
3. In-kind creation/redemption is allowed for spot bitcoin and ether ETFs
4. Spot ether ETF staking is approved
5. Bitwise Bitcoin Standard Corporations ETF, which would own the stocks of companies adopting the “bitcoin standard”, launches and crosses over $1 billion in assets
6. At least 50 other crypto-related ETFs launch, from options-based products (covered call ETFs, defined outcome ETFs, etc) to equity ETFs denominated in bitcoin to “bitcoin bond” ETFs
7. Spot Solana ETFs are approved
8. Spot XRP ETFs are approved
9. Bitwise and Grayscale Crypto Index ETFs are approved
10. Vanguard capitulates and allows clients brokerage access to spot bitcoin and ether ETFs

For grading purposes, if I get more than 80% of these correct, I’m counting this as an accurate prediction overall. The bottom line is that I expect the Trump administration to move quickly on providing clarity over which digital assets are securities versus non-security commodities. That, in turn, will provide clarity on whether these assets fall under the purview of the SEC or CFTC. Everything falls in line from there, making 2025 “The Year of Crypto ETFs”.

3) Private Credit ETFs Will Have to Wait

The ETF world was abuzz last September following a filing for the SPDR SSGA Apollo IG Public & Private Credit ETF.

Private credit is by definition “private”, meaning it doesn’t trade on a public exchange. Even when it does trade privately, it doesn’t do so often. Another word for this? Illiquid. On the other hand, ETFs are transparent, daily liquidity vehicles. Stuffing private credit into an ETF wrapper looks like a classic liquidity mismatch. It would be difficult for an ETF to properly function if holding securities that don’t trade on transparent, public exchanges. This would be especially true during periods of market stress.

The SEC does not permit ETFs to hold more than 15% of net assets in investments deemed illiquid. While the specifics of the above filing are still a bit murky, notice the portion I have highlighted. State Street would work around the 15% rule by having Apollo standing ready to provide liquidity. In other words, Apollo would be the buyer, seller, and valuation provider of the private credit. In theory, that would help solve the liquidity mismatch dilemma. But, do you see any issues with this?

I’ll let Micah Hauptman, Director of Investor Protection at the Consumer Federation of America, explain:

Nothing against Apollo, but this is the classic “fox guarding the hen house”. There are REAL conflicts of interest here.

State Street isn’t the only issuer seeking to bring private assets to ETFs. The world’s largest ETF issuer, BlackRock, made several acquisitions last year focused on bulking up their private asset capabilities. BlackRock CEO Larry Fink said, “just as index has become the language of public markets, we envision we could bring the principles of indexing, even iShares, to the private markets”.

If anyone can figure this out, it is absolutely ETF issuers – especially when we’re talking about the largest players who possess significant financial, operational, and political resources. There is also an argument that ETFs will actually bring price discovery and liquidity to private assets (highly recommend reading this comment letter from industry veteran Phil Bak). And, to be clear, I’m not against private assets in ETFs (though I’m not entirely sure that investors really need access to private assets – that’s a blog for another time). I simply can’t get my ETF brain around how this will be done in a manner that properly serves investors’ best interests. If I can’t figure this out, I don’t see how the SEC gets comfortable with it (even a less stringent SEC under the Trump administration). There may be watered-down versions of these ETFs that come to market, but I don’t see how a product such as the one proposed by State Street will be allowed.

4) 351 Exchanges Go Mainstream

A story that went under the radar in 2024 was the launch of the Cambria Tax Aware ETF (TAX). This ETF took advantage of something called a 351 exchange. Here’s how it works:

Let’s say an investor has a sizeable individual stock portfolio held in a taxable account. Let’s also assume those stocks have large capital gains overall. If the investor were to sell positions, they would be on the hook for paying taxes to Uncle Sam. A 351 exchange allows this investor to instead contribute those stocks into an ETF. Instead of owning a portfolio of individual stocks, the investor now simply owns ETF shares. Importantly, this investor doesn’t pay any taxes until they actually sell those ETF shares. There’s another benefit. It’s possible (likely) their individual stock portfolio had become overly concentrated because remember… if they sold positions, they paid taxes. However, the ETF shares they now hold can allow for greater diversification via the magic of creation and redemption. Their legacy individual stock holdings will be swallowed into a broader ETF and ultimately purged as necessary. Plus, the investor will receive the tax benefits of the ETF structure itself. Sounds pretty attractive, doesn’t it?

Well, it’s real and it’s spectacular. There are certainly some nuances and limitations involved with 351 exchanges (highly recommend reading this), but I predict the industry will see a wave of copycat ETF filings and launches this year. 351 exchanges are simply too much of a no-brainer for higher net worth individual investors and advisors running separately managed accounts. ETF Architect has figured out how to offer this at scale and additional firms will follow. Which leads to a bonus prediction from Cambria’s Meb Faber:

5) A Leveraged Single Stock ETF Implodes

A top story from 2024 was the proliferation of leveraged single stock ETFs. There are now approximately 70 of these products offering 2X exposure to high-flying companies such as Nvidia, Tesla, MicroStrategy, Coinbase, and Palantir. This category has ballooned to nearly $20 billion in assets and more ETFs are on the way.

Daily reset leveraged ETFs suffer from something called volatility decay. These products are essentially designed to lose value over time due to the compounding effect of daily returns. Simply put, if you combine highly volatile stocks with leverage, reset that position on a daily basis, and do this over a long enough time period – bad things can happen. These ETFs should not be used by most investors, particularly novice retail investors.

However, that’s not even what I’m talking about as it pertains to my prediction. I simply wanted to take this opportunity to offer a brief tutorial as a disclaimer for investors who dabble in these high-octane ETFs.

So, what am I talking about? With 2X leverage on a single stock, it doesn’t take a math wizard to calculate what might cause a leveraged single stock ETF to implode. I’m not going to name any names here, but let’s say your favorite bitcoin treasury company precipitously declines by 60% over a two-day period. Guess what happens to the 2X leveraged stock ETF tracking this company?

While there are actions ETF issuers can take, including reverse share splits, if the underlying company falls too far, too fast – it’s game over. Unfortunately, I predict we’ll see this come to fruition in 2025.

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