The best ETFs to watch in 2025 include a range of themes, from potential top performers benefitting from a new Trump administration to diversification tools in an uncertain economic environment, as well as protection against higher-for-longer inflation and interest rates.
While many analysts and other market watchers are generally bullish about the coming year, the Federal Reserve’s “dot plot” showing individual policy maker’s interest rate projections, revealed Dec. 18 that the Fed expects to deliver two rate cuts in the coming year, down from the previously expected three.
That monetary policy path adjustment suggests inflation may be stickier than the Fed recently believed, throwing cold water on the post-election market boost for stocks and crypto, and placing a dark cloud over bullish predictions for the coming year.
Amid that backdrop, the best exchange-traded funds to watch in 2025 will include those investing in Treasuries, financial stocks, consumer stocks, cryptocurrencies, and volatility, to name a few.
Financial Select Sector SPDR Fund
The Financial Select Sector SPDR Fund (XLF) tracks the performance of the Financial Select Sector Index, which includes banks, insurance companies and other financial institutions, offering exposure to U.S. financial stocks like Berkshire Hathaway (BRK.B) and JPMorgan Chase (JPM).
Potential deregulation and tax cuts in a Trump administration can directly benefit financial institutions by lowering compliance costs and enhancing profitability, enabling banks and financial firms to engage in riskier but potentially more profitable activities.
iShares Bitcoin Trust
The iShares Bitcoin Trust (IBIT) is one of 11 spot bitcoin ETFs to launch in 2024, which collectively became the most successful exchange-traded fund launch in history. The bitcoin funds added a staggering $54 billion of inflows during their debut year, most of which went into IBIT with $33 billion of inflows, according to iShares.
While the bitcoin halving event in May contributed to spot bitcoin ETF flows in 2024, the election of Donald Trump, a professed crypto proponent, helped to push the price of BTC above $100,000 for the first time. The high-side predictions for bitcoin in 2025 is for the price to reach $200,000 and spot fund flows to exceed 2024's.
iShares Russell 2000 ETF
The iShares Russell 2000 ETF (IWM) tracks the performance of the Russell 2000 Index, providing exposure to small-cap U.S. companies across various sectors. It is popular for investors seeking to capitalize on growth opportunities and diversification within the small-cap market segment.
IWM's performance potential in 2025 will depend largely on the strength of the U.S. economy and the path of Federal Reserve rate cuts, or what many refer to as a soft landing. Lower interest rates help to boost the bottom lines of small companies as they rely more on debt financing than large companies.
iShares 0-3 Month Treasury Bond ETF
The iShares 0-3 Month Treasury Bond ETF (SGOV) tracks the ICE 0-3 Month US Treasury Securities Index with maturities primarily of three months or less. SGOV offers a low-interest rate risk, highly liquid option for investors seeking capital preservation and relatively high yields in a rising interest rate environment.
If Trump's tariff and tax plans are implemented in 2025—especially if economic growth remains robust—inflation and interest rates will remain higher for longer, keeping SGOV's yield relatively high with little price fluctuation.
Consumer Discretionary Select Sector SPDR Fund
The Consumer Discretionary Select Sector SPDR Fund (XLY) seeks to track the performance of the Consumer Discretionary Select Sector Index, which includes companies like Amazon, Tesla, and Home Depot, which thrive on consumer spending.
XLY might perform well in 2025 if economic conditions continue to favor robust consumer spending, such as declining inflation, rising wages, strong job market growth, and demand for travel and unique experiences over material goods.
U.S. Global Jets ETF
The U.S. Global Jets ETF (JETS) provides investors access to the global airline industry, focusing on major airlines like United Airlines, American Airlines, and Delta, as well as manufacturers all over the world.
A bet on the continued resilience of the U.S. consumer, the outlook for JETS in 2025 is optimistic if travel demand remains robust due to increased international tourism and easing fuel costs; however, risks like fuel price volatility or economic slowdowns could impact performance.
Consumer Staples Select Sector SPDR Fund
The Consumer Staples Select Sector SPDR Fund (XLP) seeks to track the performance of the Consumer Staples Select Sector Index, which includes companies that produce essential goods such as food, beverages and household items Components include powerhouse names such as Procter & Gamble, Coca-Cola, and Walmart.
XLP might outperform the broader stock market in 2025 if economic uncertainty or slowing growth leads consumers to cut spending on non-essential goods and services but maintain spending on necessities.
Vanguard Value ETF
The Vanguard Value ETF (VTV) tracks the CRSP US Large Cap Value Index, providing exposure to large-cap U.S. companies considered undervalued relative to their fundamentals. VTV is diversified across all sectors, but its value style has it allocating more to financials, industrials and healthcare.
Value stocks, characterized by low price-to-earnings ratios and strong fundamentals, may outperform in 2025 if interest rates stabilize or begin to decline, economic growth moderates and investors shift their focus from high-growth, speculative stocks towards more stable, undervalued companies with consistent earnings and dividend payouts.
Amplify Cybersecurity ETF
The Amplify Cybersecurity ETF (HACK) seeks to provide investment results that generally correspond to the price and yield performance of the Nasdaq ISE Cyber Security Select Index. Thus, HACK tracks a portfolio of companies actively involved in providing cybersecurity solutions that include hardware, software, and services.
As cyber threats become increasingly sophisticated and prevalent, the demand for cybersecurity products and services is expected to continue to grow in 2025 and beyond. This increased demand could drive strong revenue growth and profitability for companies within the cybersecurity sector. As with any niche sector, cybersecurity stocks and ETFs can see more price volatility than the broader stock market.
ProShares VIX Short-Term Futures ETF
The ProShares VIX Short-Term Futures ETF (VIXY) seeks to track the performance of the S&P 500 VIX Short-Term Futures Index. While 2025 begins with a cautiously optimistic economic and market outlook, uncertainty over inflation, interest rates, and the incoming Trump administration's policy path caused spikes in volatility in the second half of December.
Investors should note that VIX futures typically exhibit a "contango" structure, meaning that near-term futures contracts are cheaper than longer-term contracts. This contango effect can negatively impact the long-term performance of VIX futures ETFs like VIXY, which is not designed to be a long-term holding.
