For years, passive ETFs dominated headlines and portfolios, offering broad exposure at rock-bottom costs. But in the past 24 months, something has shifted. Active ETFs have surged past $1.2 trillion in assets—more than doubling since 2023—and are attracting both retail and institutional investors. With heavyweight issuers like JPMorgan, Fidelity, and BlackRock expanding their offerings, active ETFs are no longer the underdog in the fund space.
Why the Shift?
Flexibility in Uncertain Markets
Active managers can adapt to market shifts in real time—something a passive index can’t do. In a year marked by volatility in interest rates, geopolitical tensions, and sector rotations, that flexibility is resonating.
Access to Niche Strategies
From covered call income generation to thematic AI plays, active ETFs are giving investors precise exposure without the “buy everything” approach of broad passive funds.
Tax Efficiency Meets Active Skill
Unlike traditional mutual funds, ETFs—whether active or passive—enjoy the creation/redemption process that can minimize capital gains distributions. Investors get active decision-making without sacrificing ETF tax advantages.
But is it really shifting that much?
The numbers tell the story. Active ETFs have grown rapidly, with assets reaching $1.2 trillion as of mid-2025, more than doubling from about $550 billion in 2023. Yet despite that explosive growth, they still represent less than 10% of the overall ETF market — leaving plenty of room for expansion. Leading the way are strategies in options-based income, thematic growth, and fixed income, categories that continue to attract significant investor interest.
Key Considerations for Investors
When evaluating active ETFs, investors should keep a few key considerations in mind. Costs are typically higher than those of passive ETFs, though growing competition is steadily driving expense ratios lower. Equally important is the manager’s track record, since performance can vary widely and due diligence on both the strategy and the team is essential. Don’t rule out the newcomers but do look at their performance to see if it stacks up against the incumbents. Many new issuers bring a fresh perspective and new products to traditional strategies. Finally, investors need to consider how the fund fits within their portfolio. Active ETFs can serve as a complement to a core passive allocation, offering potential for added alpha or consistent income.
Bottom Line
Active ETFs have matured into a credible, scalable segment of the ETF universe. For investors seeking agility, strategy-specific exposure, and the potential for outperformance—without giving up ETF benefits—active could be the next logical step.
Disclosure:This newsletter is for informational and educational purposes only and is not intended to be investment advice or a recommendation to buy or sell any security. Views expressed reflect TappAlpha’s perspective at the time of publication and are subject to change. Past performance is not indicative of future results. All investments carry risk, including loss of principal. Please consult your financial or tax advisor before making investment decisions. Tax consequences depend on individual circumstances.
