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Investors are flocking to active management exchange traded funds (ETFs) and recently made the value of the asset in the investment category above a significant milestone.
Actively managed ETFs surpassed $1 trillion in assets under management in the US, as investors sought to find investment options that could go beyond passive index-tracking ETFs.
“Active ETFs are exploding because investors are looking for the best of both worlds, a Wall Street strategy with Main Street values,” Ted Jenkin, managing partner of Exit Wealth Advisors, told FOX Business. “You get the flexibility to navigate volatile markets, potential tax efficiency, and in many cases the true picture of outperforming an index instead of riding a mutual fund.”
The ETF market has grown into both actively and passively managed ETFs, but the two types have important differences.
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Actively managed ETFs have grown in popularity in recent years, recently surpassing $1 trillion in US assets under management. (Michael M. Santiago/Getty Images)
While passively managed ETFs are designed to track a benchmark such as S&P 500Actively managed ETFs aim to outperform a given benchmark by having the portfolio manager adjust the investments within the ETF based on the research or strategies they use.
“Both of these methods play an important role retail investors — the difference comes down to the target,” Charles La Rosa, vice president and head of ETFs at Gabelli Funds, told FOX Business.
“Active ETFs seek to provide a thoughtful choice of security, risk management and potential diversification, especially during periods of volatility or underperformance in the market,” La Rosa said.
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Active ETFs aim to outperform a given benchmark by using research and other strategies when adjusting portfolios to market conditions. (Adam Gray for Fox News Digital)
Fidelity Investments says there are two types of actively managed ETFs that differ in how they disclose their holdings.
Traditional actively managed ETFs, as well passive ETFsdisclose their holdings daily, while transparent ETFs disclose their holdings quarterly.
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Passive ETFs still have significantly more assets under management than fully managed ETFs. (Michael Nagle/Bloomberg via Getty Images)
A study of The Securities and Exchange Commission's (SEC) The Division of Economic and Risk Analysis noted that last year, as active ETFs surpassed the $900 billion mark, passive ETFs had more than $8 trillion in total assets.
The SEC study also notes that active ETFs had higher expense ratios than their passive peers, an asset-weighted ETF with operating expenses at 0.12% of total assets compared to 0.49% for active ETFs as of 2024.
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Equally weighted ETFs in both categories had higher expenses, passive ETFs at 0.45% and active ETFs at 0.70%.
