The boom within the boom

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  Serge Nussbaumer
  Chefredaktor

Whether in the brand new BlackRock headquarters in Manhattan, in the “One Congress” office tower on State Street in Boston or in Vanguard’s comparatively modest headquarters in a suburb of Philadelphia, the three leading providers of exchange-traded funds were probably popping corks on March 9. This day marked the 35th anniversary of the launch of the first ETF. On March 9, 1990, trading in the “Toronto 35 Index Participation Units”, or TIPS for short, began on the Toronto Stock Exchange (TSX). 35 years after its birth, the global ETF market is bursting with energy. In February 2025 alone, investors around the world invested USD 152 billion in these passive funds. According to the information service provider ETFGI, this was the 69th consecutive month of net inflows. In total, the ETF industry managed a record USD 15.5 trillion at the end of February.

There are several reasons for this success. In addition to the low fees, these are above all the simple operation, the high liquidity and, of course, the general stock market boom. Another growth driver has been added in recent years. More and more investors are adding active ETFs to their portfolios. These products deviate from the principle of tracking a specific index as closely as possible. Instead, the aim is to generate excess returns (alpha) through portfolio construction based on a specific strategy. In this respect, the ETF industry is increasingly moving into the territory of active asset managers and fund managers. At the same time, there is direct competition with a growth segment in the market for structured products – more on this later.

Growing importance

The supply is constantly increasing. According to ETFGI, around 3,400 active ETFs were tradable worldwide at the end of February 2025. Together, they amounted to assets under management (AuM) of USD 1.26 trillion (see chart 1). According to the data service provider, assets under management in this segment rose by 59% in the past year alone. Over a decade, active ETFs recorded a compound annual growth rate (CAGR) of 40.3%. By comparison, the overall market grew by 27.6% until 2024, while the CAGR over 10 years was 17.1%. Although the share of active vehicles in the overall market is still relatively low at just under 8%, it has increased more than sevenfold in the last 10 years.

This development is made possible by a huge increase in inflows. According to BlackRock, active ETFs only accounted for just over 3% of the industry’s total inflows in 2013. In the first half of last year, more than a fifth of all new ETF money worldwide flowed into active strategies (see chart 2).

Multiple drivers

The outlook is positive. Industry leader BlackRock expects assets under management in active ETFs to more than triple to USD 4 trillion by 2030. “In today’s more volatile markets, investors are increasingly looking for actively managed strategies,” says the asset manager and operator of the ETF label iShares, explaining its optimistic forecast. ETFs are preferred over other solutions due to a number of advantages such as efficiency and transparency. According to BlackRock, the boom is being fueled by regulatory changes in the US, the increasing use of model portfolios and a growing number of self-directed investors who allocate their capital via digital platforms.

J.P. Morgan takes the same line. In an analysis, the experts from the major bank refer to Rule 6c-11 adopted by the US Securities and Exchange Commission (SEC) in 2019. This so-called ETF rule makes it easier to pack customized investment solutions into the shell of an ETF. “The advantages were particularly pronounced for actively managed ETFs”, the authors of the study state.

Following this “big bang”, the number of products available in the USA has virtually exploded. While there were only 300 strategies in 2018, active ETFs already represented 1,500 rule-based portfolios in May 2024. “The appetite of retail investors has increased with the supply,” notes J.P. Morgan. At the same time, the ETF rule has led to a transformation process. From 2021 to May 2024, 77 traditional funds with a total volume of USD 110 billion were converted into active ETFs. The fact that there is no minimum investment amount for ETFs is also generating enthusiasm. According to J.P. Morgan, this advantage leads to a democratization of the investment segment.

A spirit of optimism in Europe

Although the USA accounts for around three quarters of the market for active ETFs, the boom has long since arrived on the old continent. According to Bloomberg Intelligence (BI), the number of products available in Europe will more than quadruple to 125 by 2024. ETF boutique hanetf paints a rosy future. By 2031, the assets under management of actively managed ETFs in Europe could increase from the current USD 56 billion to USD 1 trillion. The London-based financial house draws its confidence from a survey of 50 European asset managers. According to the survey, more than 90% of service providers are planning to expand their offering in this area.

And the industry giants from the USA are also getting their feet wet. Data from BI shows that J.P. Morgan Asset Management, BlackRock, Invesco and Goldman Sachs, among others, want to list active ETFs on European stock exchanges by 2025. “Europe is a paradise for active fund managers,” says Athanasios Psarofagis, ETF expert at BI. He is referring to the traditional preference of European investors for actively managed portfolios. But there are also challenges: In addition to the regulatory differences that still exist between individual countries, these include the relatively low number of self-directed investors in Europe.

Man and machine

And of course the competition will not stand idly by and watch the advance of active ETFs. In addition to traditional investment funds, the market for structured products also has something to lose. Actively Managed Certificates (AMCs) have become increasingly important in recent years, particularly in Switzerland. Issuers wrap a specific investment idea in the shell of a tracker certificate. An investment manager takes care of the respective strategy and adjusts it if necessary. It will be interesting to see whether and to what extent active ETFs can catch the AMC wave. If you are interested in the topic of AMC, read more on payoff.ch: AMC: Actively discovering the stock market world.

There are now 170 ETFs listed on the Swiss stock exchange that are actively traded. Last fall, abrdn Investments and Robeco, two issuers with several strategies, joined the SIX Swiss Exchange. One of these is the Dynamic Theme Machine ETF RDYN. This fund brings together man and machine and could therefore be an example of the rise of active ETFs. With the help of special algorithms, Robecco attempts to recognize long-term trends and their impact on the economy, society and the environment at an early stage. Management has the final say in the selection of promising themes and the corresponding stocks. The ETF with an AuM of just under USD 20 million is still in its infancy – the strategy is difficult to evaluate due to its short history.

Investment solutions

It’s good that there are also “active” heavyweights on SIX. These include the JPM US Research Enhanced Index Equity ETF JREU. J.P. Morgan launched this strategy in fall 2018. It attempts to optimize a diversified positioning on the US equity market with the help of the in-house research department. Stocks that the analysts believe have particularly high potential are overweighted, while supposedly expensive stocks are underweighted. So far, the Enhanced strategy has paid off: Since its launch, the active ETF has outperformed the S&P 500 Index by 0.66 percentage points per year.

J.P. Morgan has achieved an outperformance of 0.99% p.a. with the Europe Research Enhanced ETF JREE since its market launch. This strategy focuses on several heavyweights from the Swiss equity market. Nestlé is currently in first place with a 3.2% share of the portfolio. The ETF has thus benefited from the food company’s return to the stock market with a gain in value of almost 6.2% since the beginning of the year. With Roche, Novartis and Richemont, other Swiss large caps are among the largest positions in the fund’s assets, which total almost 150 shares.

There are a large number of active ETFs in the fixed-income segment. One of the classics is the PIMCO US Dollar Short Maturity ETF MINT. For over 14 years, this fund has been utilizing the expertise of the leading asset manager in the fixed income segment and offers a liquid alternative to traditional money market investments. The portfolio consists of corporate and government bonds, most of which are denominated in US dollars. The management tries to keep the duration in the range of up to 1 year. Diversification is very high; the ETF currently holds around 500 positions. The interest earned is distributed to shareholders on a monthly basis. The current yield is 4.6%. The concept is proving popular, with the PIMCO US Dollar Short Maturity ETF managing more than USD 2.1 billion.

These examples show the advantages that active ETFs can offer. But the boom also has its downsides. Many products do not manage to beat the benchmark. In addition, the fees are sometimes significantly higher than the usual level in the ETF market. Investors should therefore inform themselves carefully and consider whether they can actually expect added value. If not, traditional investment funds or participation solutions from the structured market could be the better choice.