Market AnalysisMar 24, 20265 Min

Active ETFs and Their Growing Role in Asset Management

Over the past decade, market participants have observed a paradigm shift in the investment world. What was a niche market in the investment world has now come to the forefront as a mainstream investment strategy: Active ETFs. Today, this revolutionary investment instrument is changing the way investment professionals and investors look at investing.

But what are Active ETFs, why are they so popular, and how are they affecting the investment world? Let’s take a deeper look to understand this better!

What Are Active ETFs?

Active ETFs are exchange-traded funds that are managed by professional portfolio managers who make decisions on which securities to buy and sell. Unlike traditional ETFs, which track an index, active ETFs aim to beat their benchmark by making informed investment decisions based on market research and strategic changes. Outperformance is not guaranteed and may not be achieved.

In simpler words, one can think of a combination of the best mutual funds, which have professional management and flexibility in strategy, combined with the benefits of ETFs, which have liquidity, transparency, and ease of trading. These characteristics may make active ETFs suitable for certain investors, depending on their objectives and risk tolerance.

Why Are Active ETFs Becoming Mainstream in Asset Management?

Only a few years ago, passive index funds and passive ETFs were the ones making headlines. Their cost-effective model and broad market exposure were perfect for long-term, buy-and-hold investors—and still are. However, the investment environment has evolved, and active ETFs are now taking centre stage. Here’s why:

Growing Demand For Active Management

Investors are seeking investment solutions that go beyond index tracking. During extreme market volatility or economic uncertainty, the ability to make changes to one’s portfolio, not just track an index, is highly attractive. Active ETFs offer this flexibility while retaining the advantages of ETFs, such as real-time pricing and daily liquidity. Active management may also lead to higher turnover and increased costs, which can affect returns.

Increase in Assets Under Management

The figures tell the story. Globally, there has been a dramatic increase in the assets managed by active ETFs. Reported growth rates and forward-looking estimates are based on industry data and projections, which may change over time. Growth in assets does not imply future performance or reduced investment risk.

Changes in New Active ETF Launches

Across major ETF markets such as the United States and Europe, there has been a significant increase in the number of new fund launches, which are actively managed ETFs. In fact, in some instances, more than 70% of the new ETF products launched are actively managed. The number of product launches may vary depending on market conditions and regulatory developments.

Active ETFs vs Traditional Mutual Funds and Passive ETFs

The emergence of active ETFs is not a standalone phenomenon but is a part of a larger shift that is taking place in the asset management industry.

Active ETFs vs Passive ETFs:

• Passive ETFs follow a particular index with limited intervention from portfolio managers.
• Active ETFs aim to beat the index through asset allocation.

There is no assurance that active management will achieve its stated objective.

Active ETFs vs Mutual Funds:

• ETFs are traded like stocks. Investors can buy and sell them during market hours at known prices.
• Traditional mutual funds typically settle at the end of the trading day at net asset value (NAV). This structural difference may offer trading flexibility; tax treatment depends on jurisdiction and individual circumstances.

It is this combination of flexibility, efficiency, and active management that is driving the popularity of active ETFs. Investors seeking strategic sector or risk positioning view active ETFs as an attractive alternative.

An Active ETF List: Examples to Watch

The active ETF list below highlights some well-known names within this growing category:

• ARK Innovation ETF (ARKK) — a thematic, actively managed fund known for targeting disruptive innovations.
• AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (AADR) — actively managed ETF using a technical investment strategy to provide international equity exposure in developed and emerging markets.
• Amplify Enhanced Dividend Income ETF (DIVO) — seeks high-quality dividend equities through active selection.
• Riverfront Strategic Income Fund (RIGS) — fixed income active strategy.

The mention of specific funds is for informational purposes only and does not constitute a recommendation to buy or sell any financial instrument. Investors should review the relevant prospectus and key information documents before investing.

This list only scratches the surface, but it illustrates the variety of strategies available — from growth and innovation to income and tactical income plays.

How Active ETFs Are Reshaping Asset Management

From a broader industry viewpoint, active ETFs are more than a new product offering. They signify a paradigm shift in the way asset managers think about creating value. Here are three key implications:

1. Increased Product Innovation

With fewer regulatory hurdles and a desire for more product offerings, asset managers are introducing innovative active ETF product offerings in equity, fixed income, alternative, and thematic areas. Regulatory frameworks and approval processes vary by jurisdiction and may affect product availability.

2. Threat to Traditional Mutual Funds

Active ETFs have gained market share relative to some traditional actively managed mutual funds, partly due to their exchange-traded structure and cost profile. Cost structures, liquidity, and performance vary by product, and no direct comparison should be made without reviewing fund-specific details.

3. The Global Rise of Active ETFs

From being a phenomenon largely in the United States, active ETFs are gaining popularity in Europe, Asia, and Australia. For instance, in some countries, active ETFs now comprise a significant part of the overall ETF offerings. Market penetration and product growth may differ across regions.

Final Thoughts

But what are active ETFs exactly, and why are they important, you ask? They are innovation in motion, a crossing point between active management and the efficiency of ETFs. Active ETFs have gained increased attention globally. Investors should ensure they understand the associated risks, costs, and investment objectives before considering such products.

The future development of active ETFs will depend on market conditions, investor demand, and regulatory developments.

Looking to explore active ETFs or build a stronger asset management strategy? Dealing.com provides the tools and market access solutions designed to support informed decision-making. Access to financial instruments through any platform is subject to applicable terms, fees, and regulatory restrictions.

Disclaimer: This content is for educational purposes only and does not constitute investment advice, personal recommendations, or a solicitation to buy or sell financial instruments. All investments involve risk, including potential loss of capital. Investors should consult professional financial advisors and consider their personal circumstances before making any investment decision.