Passive to Active ETF Migration Grows: JPMorgan

For the fourth consecutive year, most new exchange-traded funds are active ETFs, according to JPMorgan Chase. 

In their 2024 Global ETF Handbook, the $600 billion multi-national finance company noted that actively managed ETFs accounted for 76% of new issues over the past year as ETF providers continued to address new investment themes and increasingly migrate from passive to active strategies. 

Within the active ETF space, JPMorgan cited the biggest increase in new issues were among popular strategies like managed risk/defined outcome, factor investing, call/put writing, and thematic funds, together accounting for nearly half of all new ETF debuts. 

Migration From Passive to Active ETFs

The migration from passively managed funds to active strategies has been more pronounced in recent years, but this trend is not a new one.  

In the early 2000s, the ETF scene was dominated by index-based broad U.S. stock market ETFs like the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ). Funds like these held a staggering 90% of all ETF assets.  

However, with a flood of new offerings, diversification took hold. Today, broad-based passive ETFs compose just 35% of the asset pie. International equities ETFs have seen a big jump, growing from a mere 3% to 16% of total assets.   

The story is similar for style-based ETFs (focusing on factors like growth), which have grown from 3% to 21%. Sector funds have also gained ground, rising from 5% to 8% of total assets. Fixed income has also increased and now accounts for a 17% share.  

Finally, commodity, currency, and multi-asset ETFs collectively hold 3% of the market. Notably, all categories enjoyed double-digit percentage growth in assets year-over-year, fueled by strong inflows and a stellar year for stocks.

US ETF Growth in New Listings

Managed Risk, Defined Outcome “Buffer ETFs” 

JPMorgan’s report found that managed risk ETFs, which include defined outcome or “buffer ETFs,” were the leading category of funds introduced over the past year. These funds, which represent 16% of new launches, use active strategies to attempt to reduce volatility compared to a traditional ETF that passively tracks an index. 

The increase of new ETFs in this area of the market indicates that issuers see opportunities in an environment where investors increasingly fear a major market correction, as high-flying tech stocks appear due for a major correction. 

For example, the largest defined outcome fund, the FT Vest Laddered Buffer ETF (BUFR), is designed to provide investors with exposure to U.S. large-cap stocks while also offering limited downside protection.  

Here’s a breakdown of how defined outcome ETFs work:  

• Target returns and downside protection: These ETFs aim to deliver a specific level of return within a set timeframe, while also offering some level of protection against potential losses in the underlying index. 
• Option strategies: Defined outcome ETFs achieve their goals by using option contracts. These options contracts are typically linked to a market index, such as the S&P 500. 
• Outcome period: Each defined outcome ETF has a predetermined period, often one year, during which the targeted returns and downside protection apply. 
• Limited upside potential: While offering protection, or a “buffer” against losses, defined outcome ETFs may also limit potential gains if the market significantly outperforms expectations. 

One of the most prolific issuers of defined outcome ETFs is Innovator ETFs. Their largest fund is the Innovator U.S. Equity Power Buffer ETF January (PJAN) with $1.11 billion in assets. In the last year, the best-performing Innovator ETF was Innovator Uncapped Accelerated US Equity ETF (XUSP) at 36.03%. The most recent ETF launched in the Innovator space was the Innovator Equity Defined Protection ETF 2 Yr to July 2026 (AJUL) on July 1.