Active exchange-traded funds (ETFs) are experiencing explosive growth, rapidly approaching the $1 trillion milestone, signaling a significant shift in the investment landscape. Once dominated by passive indexed strategies, the ETF market has adapted to meet the rising demand for flexible, transparent, and tailored investments. Since 2020, a staggering 85% of all ETF launches have been focused on the active segment, which, despite constituting only 9% of total ETF assets, has captured nearly 27% of this year's market inflows.
This shift comes amid a notable exodus of capital from traditional mutual funds, signaling a potential change in investor preferences. As interest in active ETFs continues to grow, innovative entrants are emerging, deploying unique strategies that capitalize on areas where active management proves beneficial. With meticulous security selection and diversified sector strategies in areas such as energy, technology, and real estate, these new players are driven by the quest for growth and competitive advantage.
Two standout newcomers in the ETF space are TCW Group and Cohen & Steers, each adopting distinct approaches to leverage the active ETF market. TCW embarked on its journey into ETF offerings with the 2023 acquisition of Engine No. 1's ETF business—a notable firm that gained notoriety in 2021 during its push against ExxonMobil over environmental board governance. This acquisition has allowed TCW to roll out a lineup of innovative ETFs, including the TCW Transform Systems ETF (PWRD) and the Transform Supply Chain ETF (SUPP).
The TCW Transform Systems ETF, valued at approximately $343 million, targets sectors expected to benefit from the ongoing energy transformation, focusing on companies involved in smart energy grids, clean transportation, and digital infrastructure. This fund boasts top holdings that include industry leaders such as GE Aerospace, Airbus, Trane Technologies, and Union Pacific.
Meanwhile, the Transform Supply Chain ETF aims to capitalize on the reshoring of jobs and operational tasks back to North America, reflecting a significant shift in supply chain dynamics. With a concentrated focus on technology, manufacturing, and transportation sectors, top holdings include Waste Connections, Martin Marietta Materials, Eaton, and Vulcan Materials.
In addition to these innovative funds, TCW has also converted its Compounders ETF (GRW), valued at $132 million, from a mutual fund. This ETF focuses on high-quality firms with strong free cash flow and consistent earnings, thereby aiming to capture steady growth through defensible equities. Major holdings in this ETF include firms like Constellation Software, Visa, and Microsoft.
Cohen & Steers, another key player in the ETF arena, has made headlines with its latest suite of targeted ETFs rolled out in February 2025. Drawing on its pioneering expertise in real estate, Cohen & Steers has introduced the Cohen & Steers Real Estate Active ETF (CSRE). This fund employs a bottom-up investing approach designed to fine-tune real estate exposure. The primary objective is to enhance absolute and risk-adjusted returns in a sector known for its inefficiencies and wide-ranging returns.
Beyond equities, the Cohen & Steers Preferred & Income Opportunities Active ETF (CSPF) stands out by aiming to provide high income and capital appreciation with a diverse mix of preferred securities, particularly focusing on investment-grade opportunities. This strategy is likely appealing to investors looking for reliable returns combined with the potential upside that comes from equity-like features.
The current landscape for active ETFs is bright, with demand and adoption expected to continue increasing. This growth not only offers new engagement avenues for investors but also reflects a significant evolution in asset management approaches. The interplay between active and passive ETFs is increasingly harmonious, with model portfolios driving joint strategies, allowing asset managers to capitalize on both worlds.
Next week, key figures Eli Horton from TCW Group and Brian Cordes from Cohen & Steers will converge at the VettaFi Exchange conference in Las Vegas to discuss these trends and unveil new product offerings. The conversation is anticipated to highlight the exciting trajectory of active ETFs as they become a more prevalent force in infrastructure investment.
As the active ETF market continues to expand and evolve, it presents a promising future for investors eager to capitalize on market dynamics in innovative and effective ways.
