ETF issuers are accelerating their push into active exchange-traded funds, responding to a surge in investor demand and a rapidly shifting competitive landscape, according to new research from Cerulli Associates.
Active ETF assets in the US have soared to $1.17 trillion as of the second quarter of 2025, orders of magnitude higher compared to just $71 billion in 2018. In the first half of this year alone, Cerulli says net flows into active ETFs reached $197 billion, putting the market on track to surpass last year’s record of $279 billion in total flows.
The growth has been driven by a combination of new entrants, legacy mutual fund managers expanding into the ETF space, and established ETF issuers broadening their product lineups beyond passive strategies.
“There is particular emphasis on product development within the transparent active segment,” said Kevin Lyons, senior analyst at Cerulli.
He noted that 87% of ETF issuers surveyed are currently developing transparent active ETFs. Meanwhile, half plan to convert at least one mutual fund into a transparent active ETF to take advantage of lower costs and greater tax efficiency.
Cerulli also highlights the potential impact of a dual-share-class product structure, which would allow issuers to offer both mutual fund and ETF share classes within a single fund. While this structure is still awaiting regulatory approval, Cerulli expects it to become a significant tool for delivering active ETF solutions if approved.
Anna Paglia, executive vice president and chief business officer for State Street Investment Management, highlighted the potential game-changing role of dual share-class structures for 401(k) investors, particular as it allows ETF issuers to create mutual fund share classes of existing strategies.
"Record-keepers designed their systems around mutual funds: daily net asset value calculations, fractional shares and payroll deductions," Paglia wrote in a guest commentary for Barron's. "[Dual share classes are] a way for 401(k) retirement investors to invest in an ETF strategy but through the mutual fund format they are already used to."
Despite the momentum, ETF issuers face several challenges in distributing active products. Gaining shelf space on broker/dealer platforms remains a major hurdle, with 71% of issuers agreeing it is difficult to secure placement for active ETFs. Additionally, 58% of issuers believe that advisors require more education on how to use active ETFs effectively.
“As development of active ETFs progresses, ETF issuers will need to maintain collaboration with wealth management teams to boost product placement, enhance educational resources, and tackle potential challenges for successful distribution,” Lyons said.
Fee sensitivity is another concern, as 38% of issuers agree that higher fees for active ETFs put them at a disadvantage relative to passive offerings. Still, active ETFs are largely cheaper than active mutual funds: one recent analysis by LPL found just 20 out of 178 active ETFs had higher expense ratios than the average active mutual fund.
"[T]he average expense ratio of large value active ETFs is 28 basis points (0.28%) cheaper than the average expense ratio of active large value mutual funds (measured using institutional share classes)," wrote Derek Beiter, senior investment analyst at LPL. "The cost savings are slighter for broad fixed-income investments, where active ETFs are 13 basis points cheaper than active mutual funds, on average."
While there might be some confusion between fundamental and quantitative active strategies, the ETF issuers in Cerulli's survey do not see it as a major issue, with only 13% of issuers citing it as a concern.
When it comes to growth opportunities, ETF issuers are prioritizing the wirehouse and independent RIA channels. Thirty-nine percent of issuers rank the wirehouse channel as their top choice for asset growth, while 48% place the independent and hybrid RIA channel first or second. Model portfolios are also gaining traction, with three-quarters of issuers identifying model providers as a top-five opportunity for future ETF distribution.
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