The asset management industry is witnessing a remarkable surge in the launch and growth of actively managed exchange-traded funds (ETFs), but the market remains dominated by a select few players. According to a recent research report by Broadridge Financial, asset managers introduced a record 660 active ETFs in 2024 alone, reflecting the growing appetite among investors and financial advisors for these investment vehicles.
Assets in active ETFs have skyrocketed from $81 billion in 2019 to an impressive $631 billion in 2024. Broadridge projects that this figure could nearly double to $1.239 trillion by 2027, signaling sustained momentum in this segment of the market. Yet, despite this rapid expansion, the active ETF landscape remains highly concentrated. The top three asset managers control 48% of all assets in active ETFs, and the top 10 firms collectively hold 77%, underscoring a significant market concentration.
Davis Walmsley, head of U.S. solutions at Broadridge Data and Analytics, described the phenomenon as a “gold rush” where only a handful of pioneers achieve spectacular success, while many others struggle to gain traction. “Over time, there’s been so many new products, but not that many have reached escape velocity,” he said, highlighting the challenge for many new ETFs to break through and attract meaningful assets.
One key factor behind success in active ETFs is the ability to raise substantial assets in the first year after launch. Broadridge’s research found that just 11% of active ETFs raised more than $100 million in their initial year, yet these funds now represent two-thirds of all assets in the active ETF market. This early momentum appears crucial for long-term viability.
The preference for ETFs over traditional mutual funds among both investors and financial advisors is driven by several advantages. ETFs offer greater transparency, allowing investors to see their holdings in real time, and they are typically more tax-efficient than mutual funds. These benefits have fueled record inflows, with combined passive and active ETF investments reaching $1 trillion in 2024.
Meanwhile, actively managed mutual funds are facing headwinds, with Broadridge projecting a 3% decline in organic growth between 2024 and 2027. This contrast highlights the shifting landscape of asset management, where ETFs are increasingly taking center stage.
Among professional investors, registered investment advisors (RIAs) have emerged as the most enthusiastic adopters of ETFs for client portfolios. Walmsley attributed this trend partly to technological differences, noting that independent advisors often have more streamlined processes for incorporating ETFs compared to those working at national brokerage firms, which may face longer approval procedures and other hurdles.
This dynamic places a premium on asset managers’ distribution strategies. “If your product isn’t on the shelf at the store, no one’s going to buy it,” Walmsley remarked, emphasizing the importance of securing widespread platform access for ETFs to succeed.
Encouragingly for asset managers, RIAs remain eager to increase their use of ETFs. In a Broadridge survey, 59% of RIAs indicated they would replace more or all of their mutual fund holdings with ETFs, though the average timeline for this shift is around 2.5 years. This suggests continued growth in the ETF channel, albeit at a measured pace.
As the asset management industry races to meet burgeoning demand, the “gold rush” analogy seems fitting. While many new active ETFs flood the market, only a few will achieve the critical mass needed to thrive. The combination of first-year asset raising, distribution reach, and investor preferences will determine which funds break away from the pack.
In sum, the active ETF market is booming but remains highly concentrated, with a few dominant players capturing most of the growth. Investors and advisors are increasingly favoring ETFs for their transparency and tax benefits, accelerating the shift away from mutual funds. Registered investment advisors, in particular, are leading this transition, signaling a transformative period in how portfolios are constructed and managed.
With assets projected to more than double in the next few years, the race to launch successful active ETFs is intensifying. Yet, as Walmsley’s insights reveal, the journey from launch to “escape velocity” is a steep climb that only a select few will master.
