The Case for Active ETFs
Active ETFs are funds managed with the goal of beating the market—and they’re rapidly reshaping the asset management industry.
In partnership with New York Life Investments, this visual breaks down why these instruments present a compelling opportunity for investors in today’s climate.
The Explosive Growth of Active ETFs
Active ETFs are booming in popularity. Investor demand for professionally managed, transparent, and flexible investment solutions amid market volatility and higher taxes is fueling this growth.
The active ETF market is expected to grow from $1.2 trillion in 2025 to $10.9 trillion in 2035. This marks 800% growth in just a decade.
| Year | U.S. Active ETF AUM ($ trillions) |
|---|---|
| 2020 | 0.2 |
| 2021 | 0.3 |
| 2022 | 0.3 |
| 2023 | 0.5 |
| 2024 | 0.9 |
| 2025F | 1.2 |
| 2026F | 1.7 |
| 2027F | 2.2 |
| 2028F | 2.8 |
| 2029F | 3.5 |
| 2030F | 4.4 |
| 2031F | 5.3 |
| 2032F | 6.5 |
| 2033F | 7.8 |
| 2034F | 9.3 |
| 2035F | 10.9 |
But investors are always chasing one thing: alpha, or returns that beat the benchmark. How might these instruments stack up?
Alpha Potential
Behind every active ETF is a portfolio manager making strategic decisions to pursue stronger returns. This flexibility allows them to boost exposure in strong markets and dial it back during downturns—enhancing the potential to generate alpha.
Diverse Offerings
The investment world is moving toward personalization, and actively managed ETFs provide the flexibility to modernize portfolios. As the market grows, they offer ample room for innovation and differentiation—opening up new opportunities for investors.
| Demand (%) | ||||
|---|---|---|---|---|
| Region | Thematic ETF | Alternative ETF | Crypto ETF | |
| Asia-Pacific | 38 | 15 | 38 | |
| Canada | 21 | 16 | 5 | |
| Europe | 37 | 26 | 5 | |
| U.S. | 26 | 34 | 20 | |
Active ETF investors can choose from a wide range of offerings, including popular thematic ETFs focused on areas like green tech, innovation, and reshoring. Cryptocurrency and alternative ETFs are also on the rise.
Cost Efficiency
Fees for actively managed ETFs and mutual funds are at record lows, letting investors tap into active strategies without the high cost. In fact, issuers have cut management fees for active equity ETFs in half since 2015, enhancing return potential over time.
| Active ETF Management Expense Ratio | ||
|---|---|---|
| Year | Equity ETFs | Bond ETFs |
| 2015 | 0.82 | 0.47 |
| 2017 | 0.90 | 0.48 |
| 2019 | 0.74 | 0.40 |
| 2021 | 0.53 | 0.39 |
| 2023 | 0.43 | 0.35 |
The management expense ratio (MER) for equity ETFs was 0.82 in 2015 versus 0.43 by 2023. Similarly, the MER of bond ETFs has been cut from 0.47 to 0.35 over the same timeframe.
Taking Control
These instruments offer a powerful trifecta of opportunity—alpha potential, greater flexibility, and lower costs—making them a compelling choice for the modern investor.
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