Two overlooked market opportunities for ETF investors

The start of the year challenged quite a few investor assumptions, from US exceptionalism to the dominance of the Magnificent Seven and the resilience of other parts of the market. Unsurprisingly, market flows followed changing sentiment, and this was particularly highlighted in activity across the ETF industry.

VanEck’s CEO and Managing Director Arian Neiron observes that this was not bad news for the ETF industry, as investors have sought convenient and cost-effective means to shift away from US stocks and treasuries.

He has seen investors shift towards emerging markets, core Australian equities and subordinated bonds across the past six months, though muted flows into gold ETFs has surprised him. 

"The gold price has demonstrated notable resilience in 2025, which is impressive given that investment demand has not been strong," Neiron says. 

He sees gold as an underappreciated opportunity for investors, and part of an optimal portfolio.

In addition, Neiron argues the key to managing portfolios in coming months will come down to a thoughtful and measured approach, with a focus on quality and a tilt towards long-duration assets like infrastructure and defence. 

In the following Q&A, Neiron discusses ETF flows across the industry and within VanEck’s suite of products, ETF performance, and two opportunities he believes investors are overlooking. For good measure, he shares one ETF he would own for the next five years.

What trends have you seen in terms of ETF flows this year and how has the macro environment shifted behaviour?

The major upheaval in markets this year has challenged many of the core beliefs of investors, most notably the infallibility of US assets. This has not been a bad thing for the ETF industry. As investors have sought to reduce exposure to US stocks and treasuries, ETFs have offered convenient, cost-effective access to alternative opportunities.

In our own suite of products, we have observed a significant shift in favour of emerging markets. 

Investing in emerging markets has long suffered the misconception of higher risk, which has stymied broader participation, whereas US assets have always been considered risk-free and near infallible. 

With the veil on US exceptionalism lifting in recent months, this has cleared a path for emerging markets, and bonds and equities have both benefited from this shift.

Another winner has been our subordinated bonds ETF (ASX: SUBD), which has commanded the lion’s share of our flows this year. Its popularity has been driven by more than the recent markets turbulence. The phase-out of ASX hybrids, announced by APRA last year, set the course for a groundswell of fixed income investors searching for a replacement. SUBD’s higher yields relative to senior debt and most investment-grade bonds have proven to be an attractive proposition.

We have continued to see strong flows into our core Australian equities and international equities ETFs this year, both of which have maintained outperformance of their respective benchmarks. Subdued growth in the broadbased equity markets this year has accentuated the excess returns of smart beta strategies, and we’re seeing a growing appreciation of the value that equal-weight and quality-factor investing (among others) can offer over passive equivalents.

The price momentum for global defence ETFs has accelerated quickly after a sequence of geopolitical events catalysed a surge in defence spending – a rally we have observed as fairly consistent throughout the year. 

Our fixed income strategies have also demonstrated stable and consistent net flows, particularly at the short end of the curve. The one surprise for us has been the relatively muted flows into gold bullion and gold miners, despite being among the best performing asset classes this year.

Which types of ETFs have offered the best performance over the past year and which have struggled?

We are observing a two-person race for ETF leadership in the year to date, consisting of gold miner equities and global defence ETFs.

With faltering US exceptionalism becoming the new playbook for international investing, it is little wonder that geared US equity funds and long-duration US treasury ETFs are at the bottom of the pack. Invariably, the top performers per month have rotated between bitcoin/Ethereum ETFs and gold bullion/gold miner ETFs, with global defence and video gaming & esports also making a strong repeat showing.

Notwithstanding the polarising views on crypto and bitcoin ETFs, it is interesting to observe that bitcoin and other crypto ETFs have done a regular rotation between being the best and worst performers on a monthly basis.

What are the key market themes you expect to play out in the coming 6-12 months and which types of ETFs do you expect to benefit most from these?

Over the next 6-12 months, we don’t anticipate much change to the risk factors that currently prevail in markets. The problems posed by tariffs, escalating conflict in the Middle East, dedollarisation and the US debt crisis are unlikely to be resolved in the near-term. Trump, meanwhile, is the perennial wildcard keeping the markets on tenterhooks, and his tenure still has another 3.5 years to run.

We think the same strategies that are outperforming now will continue to do well over the next year, and there are several factors that support the potential of an even bigger rally to come.

For instance, NATO’s recent agreement to increase defence spending by allies to 5% of the GDP by 2035 (up from 2%) is expected to drive significantly more investment into defence stocks over the next decade.

What opportunities do you see in the market that you think investors are overlooking and how could investors approach these?

Emerging markets and gold.

The weaker US dollar has been a tailwind for emerging markets in the past, and we see this as a potential opportunity moving forward across the for select emerging markets equities and bonds. The market dynamics have given a boost to these countries, many of which are net US dollar creditors and commodity exporters. Their currencies have gone up as the US dollar has gone down. {You can read more about emerging market bonds in Livewire's Tom Stelzer's recent interview with VanEck's Eric Fine}

Gold equities ETFs, as mentioned previously, continue to be an opportunity that investors are overlooking. The gold price has demonstrated notable resilience in 2025, which is impressive given that investment demand has not been strong (as tracked by the holdings of global gold bullion ETFs). This reaffirms our view that other centres of demand, most notably global central banks (particularly in emerging markets), continue to provide support for the gold price. Unlike investor interest, which seems to surge and fade depending on evolving financial market conditions and global macro-economic developments, the official sector’s gold buying appears anchored to a long-term commitment by central banks to diversify reserves and is supported by gold’s role as an inflation hedge and strong performer in times of crisis.

What do you see as an optimal asset allocation for a portfolio in the coming year?

In approaching asset allocation over the next 12 months, it is essential to resist the temptation of short-term speculation and instead pursue a thoughtful, disciplined rebalancing of risk. Investors should consider reducing exposure to broad Australian equity beta, where concentration risk, both sectoral and structural, remains elevated. A more efficient expression of domestic equity exposure lies in mid and small-cap segments, where idiosyncratic opportunities are often underappreciated.

Globally, the emphasis must remain on quality. That means owning businesses, across both large and small capitalisations, that exhibit sustainable competitive advantages, resilient cash flows and strong governance. 

Sectorally, allocations should tilt toward long-duration assets like infrastructure and defence, which benefit from secular tailwinds and geopolitical realignment.

In emerging markets, a strategic overweight is warranted, but it must be approached with discernment. Not all markets are created equal - selectivity is critical to managing both volatility and governance risk.

On the fixed income front, investors should extend duration by allocating to long-dated Australian government bonds, which can provide ballast amid macroeconomic uncertainty. In credit, quality matters, high-grade issuers should be favoured over yield-chasing behaviour.

Alternatives deserve a dedicated allocation, particularly uncorrelated strategies that offer return streams independent of traditional beta exposures. Within this, gold bullion serves as both a store of value and a portfolio hedge in an era of fiscal and monetary ambiguity.

Finally, currency exposure remains an often-overlooked driver of risk and return. Investors should take deliberate steps to manage USD exposure, avoiding unintentional concentration and preserving purchasing power across geographies.

If you could only own one ETF for the next 5 years, what would it be and why?

Given the distinct likelihood of markets remaining volatile over the next five years, we consider quality global small caps as offering the strongest combination of attributes for driving outperformance over this time frame.

Global small caps remain one of the few segments that are still trading at meaningful discounts relative to historical averages, providing these stocks with a runway for growth in the medium term. 

The quality factor serves the dual purpose of identifying small caps with the best prospects of delivering outsized returns and providing the best overall performance (relative to other factors) throughout the economic cycle.

[VanEck issue a global small caps ETF with a quality focus, the VanEck MSCI International Small Companies ETF (ASX: QSML)]