Active ETF Growth Tops Passive, Still Gaining Steam

Morningstar says Asia’s 78% increase in 2023 was the highest of any region.

Actively managed ETFs are growing at an exponentially faster rate than passive exchange-traded funds as the asset class continues to gain popularity among retail investors globally, according to a new report from Morningstar. 

Active ETFs, which include 1,136 funds with $447 billion under management, grew at a rate of 14% in the first half of this year, while passive ETFs only grew at 3%. ETFs overall are gaining steam still, according to the report, as they experience their 113th straight month of inflows. 

“ETFs are just the favored vehicle these days,” explained Syl Flood, the report’s author, in an interview. He is senior editorial director at Morningstar. 

The U.S., with 78% of assets under management, is still the central hub for active ETFs, the report said. Yet other nations are catching up. Actively managed ETFs in Asia grew at a 78% rate in the first half of the year, the fastest expansion of any region.  

That figure surprised Flood. He contended that the “frictionless” nature of ETF trading was partially responsible for the assets’ growth in Asia as retail investors can easily access and trade them. 

Active ETF Growth 

While the first active ETF had its debut in 2008, the investment vehicles have been gaining steam recently. Retail investors and asset managers both have been turning to actively managed ETFs as a compelling alternative to mutual funds. The assets offer higher fees than passively managed ETFs, but investors hope the active fund managers can beat the market with trading techniques.  

The largest active ETF is the JPMorgan Equity Premium Income ETF (JEPI), with $29 billion in assets. J.P. Morgan also is the fastest-expanding asset management giant, growing by 5.6% and brought in $40 billion globally in the first half of the year, according to Morningstar.  

Vanguard is still the reigning active management king, but has been losing ground to iShares. Vanguard has brought in $59 billion so far this year but iShares has reaped $66 billion. 

Contact Lucy Brewster at [email protected] or on Twitter at @lucyrbrewster