ETF trends and innovations heading into 2026

After a decade of extraordinary growth, Australia’s ETF industry entered 2025 in a more mature phase of its evolution. No longer are ETFs just seen as low-cost access to diversified global or Australian shares, they have earned representation across all parts of investors’ portfolios. There are now more than 450 ETFs with a range of different investment styles and objectives. Last year Australian investors set a new record of $31 billion in new money invested into ETFs, this year that figure may be higher than $50 billion.

Here I highlight three key themes for the year in ETFs.

Theme 1 – Beyond broad market exposure

As was the case last year, low-cost market cap index ETFs have captured the lion share of those investor inflows. But this year there has been a material uplift in new active managers launching ETFs, with the number of active ETFs jumping to 153. While most of the new actively managed ETFs have failed to gain traction so far, there were some notable ETFs from fund managers like Macquarie, Coolabah and Perpetual that have been well supported by investors. Balancing that however, the ETFs with the largest outflows year-to-date are all actively managed. Meanwhile, Smart Beta ETFs are also providing a way to invest beyond broad market, and have captured 15% of net inflows making them the second most popular investment style, ahead of active.

One trend that we expect for ETFs launched in 2026 is a shift in focus, from providing new investment exposures to solving particular investor challenges. 

In the US there has been a wave of new ETFs providing tailored outcomes, for example S&P500 exposure with a predefined mix of growth, income and protection. 

While these specific structures may not necessarily resonate in Australia, Betashares has launched other solutions designed to assist retirees with a bucketing strategy, such as our Defined Income ETFs, or young accumulators seeking to maximise their contributions to super, with our Wealth Builder ETFs.

In Europe, we are seeing the first ETFs experimenting with tokenised underlying assets or blockchain-based settlement processes. 

While still early-stage, these developments signal how ETFs may become even more efficient over time. 

This is likely a longer-dated trend for Australia, but it is certainly one to watch.

Theme 2 – Income, Income everywhere!

It might surprise many to learn that the largest ETF investor cohort are Australians aged 45-64, who now make up about a third of the 2.7 million who own ETFs. 

Typically, older investors place greater importance on the need for investment income. With the cash rate and ASX 200 index dividend yield both falling below 4% p.a., and the impending demise of hybrid securities, income-oriented ETFs were in hot demand in 2025. 

There were strong inflows into Australian dividend ETFs, with Betashares S&P Australian Shares High Yield ETF (ASX: HYLD) one of the most successful new ETFs of the year. Investors also sought out places to redeploy capital from hybrid maturities, including ETFs providing exposure to subordinated debt, diversified hybrid portfolios and credit income.

Theme 3 – Asia fires but investors play Europe a different way

One development that I would not have predicted at the start of 2025, given Trump’s protectionist policies, was ETF investors’ strong preference for Emerging Market Asia over European equities. Upon Trump’s inauguration the export-oriented economies of Asia appeared more vulnerable to US tariffs, and Europe looked best placed to benefit from the “Sell America” trade. Instead, the flows from Australian ETF investors favoured Emerging Market Asia over European equities at a ratio of four to one. Rather than buying European index exposures, investors sought out global defence ETFs riding the tailwinds from increased NATO spending commitments. Generally speaking, these ETFs all performed well.

However, the trade of the year must be awarded to the investors who piled into Betashares Geared US Equities Currency Hedged Complex ETF (ASX: GGUS) on 7 April at the post-Liberation Day lows. GGUS was the second most popular ETF on the ASX that day, and this geared exposure to the S&P500 has since returned 84% as at the end of November. Timing the market is a difficult thing to do, and the use of gearing to do so compounds the risk, but for these investors, at least, it paid off handsomely.

As we look ahead to 2026, we expect more fund managers to join the ETF landscape. A vibrant and competitive ETF investor is a great thing for Australian investors. 

Innovation, deepening investor sophistication and global trends filtering into the local market will continue to drive the next phase of growth for the ETF industry, but the focus must always be on delivering good investor outcomes.