Active ETFs outnumber passive ETFs, attracting more investors and driving growth in the market

From Yahoo Finance: 2025-06-19 08:00:00

Active ETFs now outnumber passive ones in the $11 trillion ETF market for the first time ever, with 51% of the 4,300 ETFs in the U.S. being active funds. Despite continued investment in passive ETFs, the trend towards active funds shows that the ETF investor base is expanding, attracting mutual fund investors.

In 2024, 510 active ETFs were launched, accounting for 80% of all ETF launches. The asset-weighted expense ratio for an active ETF is 0.4% compared to 0.14% for an index ETF. Model providers expect to include more active stock and bond ETFs in their models over the next 36 months.

Managers can charge higher fees for active ETFs, driving the growth of ETF listings. Established asset managers dominate the indexed space, leaving room for competition in the active space. Investors are attracted to the tax-efficient, liquid, and transparent wrapper of active ETFs over traditional mutual funds.

Active ETFs now outnumber passive ones, with many strategies being systematic rather than typical stockpickers. Defined outcome ETFs reset their options exposure annually, contributing to the growth of active ETFs. Defined-outcome managers have launched multiple ETFs per issuer, increasing the active ETF count.

The surge in active ETFs signals a shift in the ETF market, with investors showing a preference for professionally managed funds over index-tracking ones. The growing adoption of active ETFs reflects the expanding ETF investor base and the appeal of new launches and model portfolios to mutual fund investors.

Read more: New Launches and Model Portfolios Boost Active ETF Numbers