Assessing the 2025 Thematic ETF Winners: Structural Shifts or Cyclical Peaks for 2026?

The 2025 ETF landscape was defined by extreme divergence, where a handful of niche themes captured outsized returns while broader markets delivered more modest gains. The story was dominated by precious metals, which claimed the top 15 spots on the year's best-performing ETF leaderboard. This wasn't a broad-based rally but a concentrated bet on a specific set of structural and cyclical forces. Through December, the performance was staggering: gold prices are up 71% year to date, while silver has soared 149%. Platinum and palladium followed, each up 149% and 89% respectively. The rally was powered by a potent mix of geopolitical tensions, trade-war fears, inflation anxiety, and persistent speculative demand, with gold serving as the anchor.

The most explosive gains, however, came from leveraged exposure. Mining ETFs delivered returns that dwarfed the metals themselves. The VanEck Gold Miners ETF (GDX) is up 166% in 2025, and the iShares MSCI Global Silver and Metals Miners ETF (SLVP) led the pack with a 212% gain. The top 11 ETFs on the list were all silver and gold miner funds, with returns ranging from the mid-160s to just under 200%. This created a clear hierarchy: physical metal ETFs like SLV and SIVR posted gains around 148%, while platinum-focused funds like PPLT and PLTM gained roughly 146%. The sheer concentration of returns in this narrow sector highlights the extreme nature of the 2025 theme.

Beyond precious metals, a new structural theme emerged. Copper prices have risen 43% in 2025 to record highs, driven by tariff uncertainty, a weaker dollar, and growing demand from electrification. This is reflected in the strong performance of related ETFs like the Sprott Junior Copper Miners ETF (COPJ). Similarly, demand for critical materials tied to the energy transition powered gains in funds like the Sprott Lithium Miners ETF (LITP) and the Sprott Critical Materials ETF (SETM). Meanwhile, thematic bets on AI and defense tech also found fertile ground, with the iShares MSCI South Korea ETF (EWY) up 90% and the CoinShares Bitcoin Mining ETF (WGMI) climbing 88%.

The bottom line is that 2025 was a year of powerful, concentrated narratives. The extreme returns and the niche nature of the top performers-precious metals and their miners-introduce significant risks for 2026. The question for investors is whether these were sustainable structural shifts or cyclical peaks that have already priced in much of the good news.

Precious Metals & Mining: From Safe Haven to Speculative Asset

The historic rally in precious metals has fundamentally shifted the narrative. What began as a traditional safe-haven play has morphed into a speculative asset class, with returns that now dwarf the underlying physical commodities. This transformation is evident in the record flows into physical trusts, the extreme concentration of silver's gains, and the hyper-volatile returns of leveraged mining ETFs. The question for 2026 is whether structural support can anchor a speculative bubble.

On one side, there is undeniable evidence of a durable shift in asset allocation. The Sprott Physical Gold Trust, a direct vehicle for owning the metal, has seen its assets grow to approximately $15 billion this year. This represents a significant inflow of capital, aligning investor behavior with the metal's performance. The trust's growth is driven by powerful structural forces like central bank buying and de-dollarization, which provide a long-term floor for gold's value. This institutional and strategic interest suggests a portion of the rally is rooted in a permanent repositioning of capital.

Yet, the sheer pace and concentration of the move point to speculative excess. Silver's performance is the starkest example. The metal gained about 140% year-to-date, but nearly all of that-about 99% came over the past six months. This explosive, late-year surge is classic catch-up behavior, where a crowded trade accelerates momentum. It suggests the rally is now driven more by momentum and fear of missing out than by fundamental supply-demand shifts. The narrowing gold-silver ratio to about 64-to-1 underscores this dynamic, as silver races to close the gap.

This speculative nature is most pronounced in the mining sector, where leverage amplifies both gains and risks. The performance of leveraged ETFs is a clear warning. The MicroSectors Gold Miners 3X Leveraged ETN, for instance, finished the year up 796%. While this return is staggering, it is not a reflection of the underlying miners' earnings power. It is a product of daily leverage resets, making these instruments suitable only for short-term traders. As one analyst noted, such funds are "intended to be held for one day" and should play "very little, if any, role in your portfolio" for long-term investors.

The bottom line is a market in tension. Structural forces like central bank demand provide a tangible support for gold, but they are being overwhelmed by a speculative frenzy in silver and mining equities. The extreme returns and the use of leverage introduce significant fragility. For 2026, this setup creates a high-risk environment where the next leg down could be swift and severe, especially if the underlying macroeconomic drivers that fueled the rally begin to wane.

Copper & Critical Materials: The Structural Supply Deficit

While the precious metals frenzy captured headlines, a more durable structural shift is unfolding in the base metals, led by copper. The investment case here is not about short-term speculation but a fundamental, long-term supply-demand imbalance. The evidence points to a systemic risk: demand is set to surge while supply is poised to peak and then decline.

The scale of the coming deficit is staggering. According to a new S&P Global study, copper demand is projected to swell to 42 million metric tons by 2040, a 50% increase from current levels. This acceleration is driven by multiple vectors: the core electrification of the global economy, the massive build-out for AI infrastructure, and a doubling of defense spending. Yet, the supply side faces a hard ceiling. The study forecasts that global copper production will peak in 2030 at 33 million metric tons. This creates a looming shortfall of 10 million metric tons by 2040-equivalent to 25% below projected demand. In other words, the world will need to produce 25% more copper than its mining industry is on track to deliver.

This is a classic case of a structural supply deficit. The drivers are not cyclical. They are the irreversible trends of decarbonization, digitalization, and geopolitical rearmament, all of which are copper-intensive. The metal's role as the "connective artery" for power grids, data centers, and defense systems has cemented its status as a "critical metal" for national security and economic growth.

Yet, the structural nature of the problem does not guarantee smooth sailing for investors. The timeline for a meaningful supply response is long. Developing new mines takes a decade or more, and the industry is already facing challenges across the value chain. This creates a prolonged period of volatility. Prices will likely swing sharply as markets digest incremental supply news, geopolitical disruptions, and quarterly demand reports. The deficit period itself-spanning from the 2030 production peak to 2040-will be one of persistent tension, not a steady climb.

The bottom line is that the fundamental case for copper and related critical materials is exceptionally strong. It is a bet on the physical infrastructure of the next two decades. However, investors must be prepared for extended volatility. The setup is not for those seeking a smooth ride. It is for those willing to navigate the choppiness of a market where the long-term trend is clear, but the path to meeting it is fraught with friction.

Defense Tech & AI: The Durability of a Spending Cycle

The rally in defense technology is being tested by geopolitical headlines, but the underlying cycle is structural. While the sector retraced about 15% from its October highs, driven by speculation over a potential Ukraine peace deal and interest rate uncertainty, the fundamental drivers remain intact. This is not a short-term event play; it is a multi-year modernization cycle supported by a durable funding base and a transformative shift in technology economics.

The scale of the coming investment is staggering. Global defense spending is projected to surpass $3.6 trillion by 2030, nearly 33% above 2024 levels. This represents a broad-based, multi-decade commitment, not a cyclical spike. The momentum is already in motion, with Europe's strategic trajectory unchanged even if conflict de-escalates. Years of underinvestment have created capability gaps that require years to fill, and regional governments are preparing to allocate nearly €800 billion toward defense by 2030. This creates a predictable, long-cycle funding stream that insulates the sector from near-term geopolitical noise.

More importantly, the center of gravity is shifting from hardware to software, fundamentally improving the business model. AI-enabled systems, drones, and digital command networks are moving from experimentation into deployment, reshaping industry economics. This pivot is critical because software-driven platforms typically carry structurally higher margins and generate long-lived, recurring revenue streams. For Q3 2025, Defense Tech companies delivered 29% year-over-year earnings per share growth, nearly double the S&P 500's pace. Operating margin expansion is forecast to continue, with another 120 basis points expected in 2026. This is a move toward a tech-like profile, widening the earnings power of leading contractors.

The bottom line is that the rally is supported by a durable cycle. Expanding order books and modernization agendas across the U.S., Europe, and Asia suggest the underlying momentum into 2026 remains constructive. The sector's ability to deliver accelerating earnings and margin expansion, powered by a shift to higher-value software, provides a tangible floor for valuations. While volatility may persist, the structural drivers-massive, multi-year spending commitments and a transformative technology shift-are far more powerful than any single geopolitical headline.

Portfolio Positioning and Forward Catalysts

The 2025 thematic explosion has left investors with a clear but complex landscape for 2026. The overarching risk is that the powerful narratives have become crowded trades, leaving them vulnerable to a shift in sentiment or a change in the underlying macro drivers. Success will require distinguishing between durable structural trends and cyclical peaks, and focusing on the specific catalysts that will move each theme forward.

For precious metals, the primary risk is a dovish pivot by the Federal Reserve that reduces gold's yield advantage. While gold's appeal as a store of value has been reinforced by geopolitical tensions and central bank buying, its performance is sensitive to real interest rates. If the Fed's rate-cutting cycle accelerates more than expected, it could trigger a sharp re-rating of gold and its miners, which have already seen extreme leverage amplify gains. As Sprott's CEO noted, corrections are a normal part of the market after such a tremendous run. The key for investors is to monitor central bank buying patterns as a leading indicator of structural demand. Record inflows into physical trusts like the Sprott Physical Gold Trust, which grew to approximately $15 billion this year, provide a tangible floor, but the speculative frenzy in silver and mining equities introduces significant fragility.

The copper story, by contrast, is defined by a structural supply deficit that will be the primary catalyst for the coming decade. The evidence is stark: demand is projected to swell 50% to 42 million metric tons by 2040, while production is forecast to peak at 33 million metric tons in 2030, creating a supply deficit of 10 million metric tons. The key for 2026 is not the size of the deficit, but the pace of new mine development and expansion. This will determine how quickly the market can close the gap, and any delays or disruptions will likely keep prices under upward pressure. Investors should watch for announcements on project financing and permitting, as these will signal whether the industry can respond to the systemic risk.

For defense tech, the durability of the spending cycle is the central theme. The rally's pullback was driven by geopolitical headlines and interest rate uncertainty, not a change in fundamentals. The structural drivers-global defense spending projected to surpass $3.6 trillion by 2030 and a shift toward higher-margin software systems-remain intact. The key catalyst for 2026 is the execution of modernization programs. Investors should monitor order book expansions and quarterly earnings for signs of margin expansion, which would confirm the sector's move toward a tech-like profile. The bottom line is that this is a long-cycle investment, and near-term volatility is likely to create opportunities for those focused on the multi-year agenda.

In synthesis, 2026 will be a year of selective conviction. The metals trade demands caution due to its speculative excess, with the Fed's policy path as a critical risk. Copper offers a clearer, longer-term structural bet, where the pace of supply response is the key variable. Defense tech provides a durable cycle supported by massive, multi-year spending commitments. For all themes, the forward catalysts are specific: central bank flows for gold, mine development for copper, and modernization execution for defense. The investor's task is to align their position with the most resilient structural currents while managing the inherent volatility of concentrated narratives.