Active ETFs overtake passive funds as preferred investment strategy

In the United States, there has been a significant shift in the investment landscape, with active exchange-traded funds (ETFs) gaining substantial traction over passive strategies. A report by Morningstar has shown that asset managers are increasingly favoring active ETFs, indicating a possible turning point for the industry. As of early 2025, more than 44% of model portfolios included at least one active ETF, with a rising average allocation of nearly 20%, up from just 12% in 2021. This trend is highlighted by a record net inflow of over $165 billion into active ETFs through May of this year. The growing interest in active ETFs is a response to their differentiation and lower fees compared to traditional investment products. Financial professionals, such as Jen Wing, CIO of GeoWealth, have acknowledged the tax advantages and innovative nature of these new products. Active ETFs not only provide a way to enhance portfolio performance but are also at the forefront of product innovation, with offerings like Bitcoin ETFs and niche strategies entering the market. This shows that financial professionals are adapting to the evolving landscape and leveraging active ETF strategies. Despite the promising growth, not all newly launched active ETFs may find success. Experts, including Gavin Filmore from Tidal Financial Group, have indicated the highly competitive nature of the ETF market and caution that many funds may not survive the test of time. Currently, active ETFs account for about 10% of total industry assets, but projections indicate they could reach $4 trillion in assets under management by 2030. Additionally, the entry of various issuers into the active ETF space reflects the enthusiasm surrounding these investment vehicles. Recent moves by GraniteShares, which submitted a request to the SEC to launch YieldBoost ETFs linked to high-profile assets like Tesla, signify the growing demand for innovative investment strategies. The inflow of $10.95 billion into leveraged ETFs in April alone highlights this upward trend in investor interest and suggests that the market for active ETFs will only continue to expand as more investors seek out strategies that promise improved returns.