‘ETF’ no longer means ‘passive’: the rise of active ETFs

A new option for investors who want active management of their funds is growing rapidly on this side of the Atlantic after making spectacular strides in America.

‘Active ETFs’ take the exchange-traded funds’ (ETFs) structure that has proved so popular among tracker fund investors and apply it to active fund management.

Already active ETFs outnumber passive ones in the US and their numbers are growing fast in Britain and Europe too.

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I thought ETFs were always passively managed. What has changed?

It’s true that for a long time ETFs were synonymous with passive investing – in other words, with tracking markets rather than attempting to outperform them – but there was never a practical impediment to active management.

Many active ETFs have now been launched and are available for private savers to buy; Fidelity International is among the fund management companies to offer them.

How fast is the growth in active ETFs?

In America, where ETFs originated, growth has been rapid. Nearly 85% of all ETFs launched this year have been active, according to a report published last month by JP Morgan Asset Management.¹ However, passive ETFs still attract more money; just 35% of the roughly $1 trillion that had flowed into ETFs so far this year had gone into active strategies, the report said. About 10%-12% of total ETF assets are actively managed.

On the London stock market there are 250 actively managed ETFs currently available, according to justETF, a data provider. London-listed ETFs of all types, active and passive, number 2,151, so about one in 10 of London’s ETFs are actively managed.

Worldwide, more than $1 trillion is invested in active ETFs.

What assets can I invest in via active ETFs?

Of the 250 London-listed active ETFs, 157 invest in shares, 85 in bonds, two in precious metals, one in property and five in money-market investments, which are like cash, according to the justETF database.

Can you give some examples of active ETFs?

The fund management brands to offer active ETFs include Aberdeen, Goldman Sachs, HSBC, Invesco and iShares, as well as Fidelity International. You can use the Investment Finder tool to search for ETFs and then filter by active management style. Ongoing charges range from 0.19% to 0.89% which is higher than those on typical passive ETFs to reflect the cost of active management.

Why choose an active ETF over a conventional actively managed fund?

Actively managed funds exist in other forms, of course, notably ‘open-ended’ funds such as unit trusts and open-ended investment companies (OEICs) and ‘closed-ended’ funds, otherwise known as investment trusts.

The key difference between an OEIC or unit trust and an ETF is that the latter trades on the stock market, whereas the former are bought and sold via the fund management company concerned. You can buy or sell an ETF at any time while the stock market is open. Crucially, you will also know the exact price you pay. OEICs and unit trusts by contrast are priced (with some exceptions) once a day, and you will not know the exact price at the time you confirm your sale or purchase.

Investment trusts resemble ETFs in that they are traded on the stock market. But ETFs are open-ended, which means that more shares can be created (or cancelled) in response to demand. Investment trusts have a fixed number of shares in issue. The practical consequence is that investment trusts can trade at a premium or discount to the value of their assets if demand exceeds (or fails to meet) the supply available; ETFs will not trade at premiums or discounts (except in exceptional circumstances) as supply can be adjusted to meet demand.

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Source:

¹JPMorgan Monthly Active ETF Monitor, 11 October 2025

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