Active exchange-traded funds (ETFs) have traditionally played second fiddle to their passive counterparts, capturing only 8% of the global market and 3% of Europe’s market share. Yet, recent developments suggest this trend may be changing. A wave of new active ETF launches and growing investor interest highlight this shift.
Among the recent entrants are Jupiter, Avantis, and Robeco. Jupiter recently launched its Global Government Bond ETF, listed on the London Stock Exchange, which aims to exploit mispricing within the sovereign bond market. It is managed by Vikram Aggarwal and developed alongside HANetf, known for white-label ETF solutions.
Robeco added to its lineup with four active ETFs late last year, and it's gearing up to introduce another product focused on the burgeoning market for exotic investments. Meanwhile, Avantis has made its mark by rolling out three new ETFs targeting various sectors: the Avantis Global Small Cap Value UCITS ETF, the Avantis Global Equity UCITS ETF, and the Avantis Emerging Markets Equity UCITS ETF.
Interest from major firms continues to grow, with Schroders also signaling plans to enter this competitive market. Notably, Fidelity International's recent Professional Investor DNA Survey revealed significant shifts among investors toward active ETFs. The survey points to professional investors increasingly favoring this investment vehicle, with the active ETF market witnessing substantial expansion, rising from $38 billion to $64 billion over the past year.
The Fidelity research particularly spotlights burgeoning demand among intermediaries and distributors, with 61% of them expressing intentions to boost their allocations toward active ETFs. Kenneth Lamont, strategist at Morningstar, noted the rise of active ETFs as one of the pivotal trends for 2025. "Trailblazers such as JP Morgan have been joined by a string of traditionally active investors such as Janus Henderson and Robeco..." he explained.
The newfound excitement for active ETFs largely stems from investors' disillusionment with the performance and costs associated with traditional active funds. Shifting their focus to lower-cost passive products, investors are now eyeing active ETFs as potential hybrids, combining the advantages of both strategies. According to Fidelity, active ETFs offer unique features such as ease of access to performance with clear visibility of full daily holdings, enabling investors to know precisely what is included at any moment.
Alastair Baillie Strong, Fidelity's global head of ETFs, remarked, "They are very risk-controlled and investors understand what they get from market exposure point of view. Lots of the strategies on offer today are ‘enhanced core’ – so relative to a market cap benchmark. They aim to achieve some excess returns from stock selection or carefully chosen alpha sources." This approach could be the key to more active ETFs capturing market share from traditional factor-based ETFs and other active funds.
Matthew Dubin, portfolio manager at Avantis Investors, pointed out the challenges investors face when assessing active funds, as they don't always align with their assigned labels. For example, discrepancies can arise even within funds thought to be similar. Strengthening transparency, active ETFs, unlike their predecessors, offer more predictable performance as they dissect shares to identify promising investment opportunities. Dubin articulated this neatly, saying, "With market-cap weighted funds, a higher price means a higher weight. There is no consideration of expected return. We want to be overweight companies with good pricing and higher profits."
Despite the optimism surrounding this market, Morningstar remains cautious about the long-term potential of active ETFs, particularly within Europe. Lamont cautioned, "Those looking at the booming US market and expecting similar asset growth here will be disappointed. While market participants agree the ETF wrapper is superior to traditional mutual funds, the marginal benefits are not as clear-cut as they are for US counterparts, which enjoy definitive tax advantages."
The true identity of many active ETFs mirrors traditional active funds, often leaving difficult questions about their adoption—and whether they will truly stand out. Interestingly, active managers continue to struggle; research from Trustnet indicates information ratios are at their lowest point over the past decade. This underperformance may create renewed inquiries from investors about whether certain aspects of asset selection can be systemized and offered at lower costs.
While the active ETF market continues to evolve, its future remains uncertain. Yet for now, they represent both opportunities and challenges, as investors explore ways to maximize their returns amid changing market dynamics. Will these funds prevail against passive ETFs or meet the challenges they face? Only time will tell.