A growing trend
28 May 2025
Active exchange traded funds will continue to grow and evolve rapidly in Europe over the next 18 months
Image: image by 200degrees/stock.adobe.com
As has been widely documented, 2024 was a banner year for active exchange traded funds (ETFs), both in terms of the numbers of funds launched and flows. The good times continue.
Tom Bailey, head of ETF research and content at HANetf, notes: “In the first two months of 2025, flows into actively managed ETFs amounted to US$3 billion or so. This may at first glance seem to be insignificant relative to the flows of US$62 billion into traditional, passive ETFs — a market that continues to be dominated by BlackRock and other established players. However, one should bear in mind that flows to active ETFs amounted to US$7 billion in all of 2023.”
The rapid expansion of active ETFs has not been at the expense of traditional ETFs however. As Alan Kelly, head of ETP Product at fund administrator Apex Group observes: “The rise in active ETFs needs to be seen in the context of the continued expansion of the overall ETF market. We have seen similar episodes in the past where certain products and strategies have become very popular, but they have not harmed the fortunes of other parts of an industry that has been growing rapidly.”
Bailey agrees: “To the extent that active ETFs have attracted assets under management from other products, it has been mainly at the expense of other wrappers — such as traditional open-ended mutual funds and investment trusts. The only thing that could stop their growth would be a reversal of flows to ETFs of all kinds.”
By contrast, Kelly sees potential for competition between active and passive ETFs in an industry where price competition can be intense. “Some investors who are new to active ETFs will be new to ETFs generally. As these investors gain greater understanding of passive ETFs, and their low costs, they may see them as a better alternative. The ETF market is one where buyers are price-sensitive.”
For now, active ETFs tend to focus on liquid equities and fixed income securities. HANetf’s Bailey observes: “There are some thematic active ETFs and one or two that pursue multi-asset strategies. It is possible that hedge fund-like active ETFs will emerge in the future. Digital assets sit in exchange traded products but not active ETFs. In the United States, Apollo Global Management has worked with State Street Global Advisors to set up an active ETF that invests in private credit.”
“There is a tremendous opportunity here for specialist providers of white-label products such as HANetf. Many asset management firms have strategies that are well suited to expression through active ETFs. However, it is an expensive and time-consuming exercise to build an in-house team. A much better alternative is to work with a white-label provider.”
As noted, active ETFs are a part of a competitive market. Apex Group’s Kelly argues that, at some point, the various protagonists will be forced to rethink their strategies. “The fees on the average active ETF are significantly cheaper than those on the average active mutual fund. It is conceivable that managers of active ETFs introduce performance fees to their products. Such fees will, of course, require prior approval from regulators.”
Bailey is more sanguine: “There may be a point in time when we see consolidation among providers of active ETFs. However, that time is a long way away. Fees for traditional ETFs are typically less than 10 basis points. Fees for active ETFs are normally 60-80bps. What really matters, though, is that active ETFs are a lot cheaper than traditional mutual funds.”
“What is equally important is that active ETFs typically do not compete on price, but on product features.”
Bailey sees trends in distribution in Europe as being very positive. “Look at the adoption of ETFs and ETF-based savings plans in Germany, which is a boon for providers of both traditional and active ETFs. Crucially, there has been good education of retail investors.”
“The UK is the second-most important market for ETFs in Europe. ETFs are gaining traction with all the online trading platforms. ETFs are often the first product/wrapper that that country’s new investors buy. They are beginning to think about the opportunities from active ETFs.”
In short, 2025 should also be a banner year for active ETFs in terms of flows and new products.
Tom Bailey, head of ETF research and content at HANetf, notes: “In the first two months of 2025, flows into actively managed ETFs amounted to US$3 billion or so. This may at first glance seem to be insignificant relative to the flows of US$62 billion into traditional, passive ETFs — a market that continues to be dominated by BlackRock and other established players. However, one should bear in mind that flows to active ETFs amounted to US$7 billion in all of 2023.”
The rapid expansion of active ETFs has not been at the expense of traditional ETFs however. As Alan Kelly, head of ETP Product at fund administrator Apex Group observes: “The rise in active ETFs needs to be seen in the context of the continued expansion of the overall ETF market. We have seen similar episodes in the past where certain products and strategies have become very popular, but they have not harmed the fortunes of other parts of an industry that has been growing rapidly.”
Bailey agrees: “To the extent that active ETFs have attracted assets under management from other products, it has been mainly at the expense of other wrappers — such as traditional open-ended mutual funds and investment trusts. The only thing that could stop their growth would be a reversal of flows to ETFs of all kinds.”
By contrast, Kelly sees potential for competition between active and passive ETFs in an industry where price competition can be intense. “Some investors who are new to active ETFs will be new to ETFs generally. As these investors gain greater understanding of passive ETFs, and their low costs, they may see them as a better alternative. The ETF market is one where buyers are price-sensitive.”
For now, active ETFs tend to focus on liquid equities and fixed income securities. HANetf’s Bailey observes: “There are some thematic active ETFs and one or two that pursue multi-asset strategies. It is possible that hedge fund-like active ETFs will emerge in the future. Digital assets sit in exchange traded products but not active ETFs. In the United States, Apollo Global Management has worked with State Street Global Advisors to set up an active ETF that invests in private credit.”
“There is a tremendous opportunity here for specialist providers of white-label products such as HANetf. Many asset management firms have strategies that are well suited to expression through active ETFs. However, it is an expensive and time-consuming exercise to build an in-house team. A much better alternative is to work with a white-label provider.”
As noted, active ETFs are a part of a competitive market. Apex Group’s Kelly argues that, at some point, the various protagonists will be forced to rethink their strategies. “The fees on the average active ETF are significantly cheaper than those on the average active mutual fund. It is conceivable that managers of active ETFs introduce performance fees to their products. Such fees will, of course, require prior approval from regulators.”
Bailey is more sanguine: “There may be a point in time when we see consolidation among providers of active ETFs. However, that time is a long way away. Fees for traditional ETFs are typically less than 10 basis points. Fees for active ETFs are normally 60-80bps. What really matters, though, is that active ETFs are a lot cheaper than traditional mutual funds.”
“What is equally important is that active ETFs typically do not compete on price, but on product features.”
Bailey sees trends in distribution in Europe as being very positive. “Look at the adoption of ETFs and ETF-based savings plans in Germany, which is a boon for providers of both traditional and active ETFs. Crucially, there has been good education of retail investors.”
“The UK is the second-most important market for ETFs in Europe. ETFs are gaining traction with all the online trading platforms. ETFs are often the first product/wrapper that that country’s new investors buy. They are beginning to think about the opportunities from active ETFs.”
In short, 2025 should also be a banner year for active ETFs in terms of flows and new products.
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