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Global active ETF assets reached a milestone $1 trillion in August, according to ETFGI, driven by regulatory shifts and diverse product offerings. Analysts expect accelerated growth in the coming years.*
Regulatory Changes Drive ETF Growth
The global assets in actively managed exchange-traded funds (ETFs) hit a record high of $1 trillion at the end of August, according to ETFGI data. The growth was primarily propelled by regulatory easing and a surge in product innovation.
Active ETFs, which seek to outperform benchmark indexes like the S&P 500, Nasdaq 100, and Russell 1000 Growth Index, have grown significantly since Bear Stearns introduced the first active ETF in 2008. Although they represent just 7% of total global ETF assets, they have accounted for 30% of all ETF inflows over the last few years, says Matthew Bartolini, head of SPDR Americas Research at State Street.
2019 ‘ETF Rule’ Spurs Growth
The 2019 regulation known as the “ETF rule” streamlined the approval process for active ETFs from the U.S. Securities and Exchange Commission (SEC), sparking rapid growth. Assets in active ETFs have increased tenfold since then, according to ETF.com data.
Growth continued this year, with assets climbing 42% as of August 31, ETFGI reports. Bartolini attributes this to more relaxed regulations that encourage issuers to adopt innovative approaches in their ETF offerings.
“Regulatory changes have accelerated some of the more novel approaches that ETF issuers can bring to the marketplace,” Bartolini said.
Diverse and Volatile Active ETF Offerings
Active ETFs range widely, from traditional funds like BlackRock’s Large Cap Value ETF to niche products such as the AdvisorShares Vice ETF, which focuses on companies in the alcohol, tobacco, and cannabis sectors. However, the performance of these funds can be volatile. The Ark Innovation ETF, for instance, surged 152% in 2020 but fell 23% in 2021 and is down 9.74% in 2024, trailing the S&P 500’s 20% gain.
Concentration Among Issuers
The active ETF market is concentrated, with the top 10 issuers controlling 75% of assets, according to a Morningstar report. In contrast, the bottom half of active equity ETFs account for just 3% of assets. “ETFs that repurpose traditional stock-picking strategies have struggled to gain traction,” said Jack Shannon, manager research analyst at Morningstar.
Investor Confidence and Future Outlook
Despite potential risks and the need for due diligence, Tim Huver, senior vice president of ETF Servicing at Brown Brothers Harriman, believes the category is at a turning point. A Brown Brothers Harriman survey found that more than 90% of ETF investors plan to increase their allocation to active ETFs.
“The second trillion is likely to arrive much more rapidly than the first,” Huver predicted.