Active ETFs Gain Further Momentum in 2025

A recent Track Insight survey highlights the increasing demand for active ETFs, with assets nearly doubling from $695 billion in 2023 to over $1.2 trillion as of February 2025. Active strategies accounted for 60% of ETF launches in early 2025 and attracted 30% of net flows, driven partly by outflows from U.S. mutual funds and potential regulatory changes like the approval of an ETF share class; furthermore, 57 mutual funds converted to ETFs in the last year, representing $8.4 billion in AUM. Innovation in ETFs and model portfolios, including options-based and single-stock strategies, is also fueling active ETF adoption.

Analysis

The active ETF segment is experiencing substantial expansion, with global assets under management reaching $1.2 trillion as of February 2025, a significant increase from $695 billion in 2023, as highlighted by the Track Insight Global ETF Survey. This growth is underscored by a high volume of new product launches, with active strategies constituting 51% of all ETF launches in the previous year and accelerating to 60% in the initial months of 2025. Investor appetite is robust, demonstrated by active ETFs capturing 22% of all net flows in 2024 and 30% in early 2025, partly fueled by significant outflows from U.S. mutual funds, which saw $388 billion in net redemptions in 2024 according to Morningstar. The trend is further supported by structural factors including 57 mutual fund conversions to ETFs in the past year, representing $8.4 billion in AUM, and the anticipation of regulatory changes such as the potential approval of an ETF share class. Ongoing innovation in product development, encompassing single-stock inverse/leveraged, options-based, and enhanced income strategies, alongside the increasing incorporation of active ETFs into model portfolios, indicates continued momentum for the sector, with firms like T. Rowe Price (TROW) actively participating with offerings such as TCAF, TSPA, and TBUX.

Key Decisions for Investors

• Consider increasing exposure to actively managed ETFs to capitalize on current growth trends, strong investor demand, and increasing market share as evidenced by 30% of net flows in early 2025.
• Monitor potential regulatory changes, such as the approval of ETF share classes by the SEC, for their impact on the active management landscape and new investment opportunities stemming from enhanced product structures.