Active ETFs and International Funds Dominate Investor Attention in May 2025

The exchange-traded fund (ETF) landscape is undergoing a notable transformation this May, as investors adjust their portfolios to navigate volatility and capitalize on emerging opportunities. With active ETFs capturing record inflows and international ETFs outperforming U.S. benchmarks, the market is seeing a clear shift in sentiment. Meanwhile, sector-specific ETFs and innovative new products like private credit ETFs are drawing increased attention from both institutional and retail investors.

Active ETFs Set Records Amid Market Uncertainty

Active ETFs have become the stars of 2025, with North American inflows hitting a record $336.6 billion — more than double last year’s tally. These products now represent over $1 trillion in assets under management and account for 27% of all ETF flows, despite making up just 9% of total assets. The surge in popularity comes as investors seek more nimble strategies to respond to market fluctuations, particularly in sectors like technology and healthcare.

The appetite for active management is also driven by concerns over elevated stock valuations and economic uncertainties, including the impact of U.S. trade tariffs and shifting interest rates. Investors are increasingly drawn to funds that can actively adjust positions in response to fast-moving news and data. For a deeper dive into this trend, check out this State Street analysis.

International ETFs Outperform as U.S. Stocks Struggle

International ETFs are stealing the spotlight from U.S.-focused funds in 2025. The iShares MSCI EAFE ETF (EFA), which tracks developed markets outside the U.S. and Canada, has surged 14% year-to-date, while the S&P 500 has slipped 3%. Several factors are driving this divergence. First, many international companies are insulated from the negative effects of U.S. tariffs, which have weighed heavily on multinational American firms.

Second, the weakening U.S. dollar has boosted returns on international holdings, making them more attractive to dollar-based investors. Finally, the resilience of emerging market economies like Mexico and Poland has provided tailwinds for international funds. According to ETF.com, this is one of the most significant stretches of outperformance for international ETFs in years.

Sector Rotations and Innovative ETF Products

Within the sector ETF space, performance has been mixed. Technology ETFs such as the Vanguard Information Technology ETF (VGT) are down nearly 12% year-to-date, reflecting a pullback from growth stocks. By contrast, financial ETFs like the Financial Select Sector SPDR Fund (XLF) are up modestly as rising interest rates bolster bank margins. Energy ETFs, including the Energy Select Sector SPDR Fund (XLE), have slipped amid volatile oil prices.

A particularly exciting development is the rise of private credit ETFs, which offer access to markets once reserved for institutional players. Apollo Global Management and State Street Global Advisors recently launched the SPDR SSGA Public & Private Credit ETF, reflecting strong investor demand for alternative income streams. Meanwhile, ESG-focused ETFs continue to gain popularity as investors prioritize sustainability in their portfolios.