Active ETFS reshape how advisors build portfolios

Active ETFs have taken an oversized chunk of all flows into ETFs this year despite the sector’s total asset figure still being dominated by passive funds.

About 88% of all new ETFs launched this year through the end of June were actively managed, according to mid-year data tracked by J.P. Morgan Asset Management. Active ETFs have taken about 38%, worth $450 billion, of all flows into ETFs at this year’s halfway point as the strategy has seen steady annual increases since it held 9% of all ETF flows in 2021.

“It’s no longer an active versus passive [ETF] story when we talk to our clients,” says Julie Guntz, global head of ETF strategy and partnerships at AllianceBernstein. “It’s how do we use passive core building blocks along with active solutions to create portfolios for our clients. And I think that passive and active dialogue in portfolio construction will continue into the future.”

Actively managed ETFs can prove to be particularly beneficial for investors leaning into themes like the crowded artificial intelligence ecosystem, according to Jon Maier, chief ETF strategist at J.P. Morgan Asset Management.

“Certain companies are overvalued, particularly on the AI spectrum, from the hyperscalers to the broadening out of the AI trade into infrastructure, into semis [semiconductors], energy,” says Maier. “Finding those individual companies that have better valuations that are leveraging their capex spending, that’s what an active manager can do.”

Active ETFs account for about 12% of all assets under management in the total ETF market, which J.P. Morgan tracks at $16 trillion. Part of J.P. Morgan’s active ETF growth has been driven by the popularity of its derivative income exchange-traded funds such as JEPI and JEPQ.

“We have roughly 50 percent of that marketplace. But there’s certainly other competitors, and that provides a really interesting place in the marketplace when you’re seeing volatility under the surface,” says Maier. “Derivative income type strategies has really played into that category, where our fund JEPI, for example, has 60 percent of the volatility of the S&P 500 and yields roughly 8 percent.”

Derivative income ETFs have grown to approximately $180 billion in assets under management, with a compound annual growth rate of more than 70% since 2021, according to Morningstar.

Firms are taking notice, with Goldman Sachs making a move in August to buy the $30 billion active ETF manager NEOS, which launched its first options-based derivative income ETFs in 2022.

“ETFs have been around for over 30 years, and when they started, they were largely synonymous with index-based investment strategies,” Scott Davis, head of ETFs at Capital Group, tells InvestmentNews. “But that’s all changed. With the advent of active ETFs, the Rule 6c-11 passage in 2019, you’ve seen [active ETFs] go from 2 percent [of total ETF assets] in the year the SEC passed the rule − now they’re 12 percent, almost 13 percent. And that’s a trend I think that will persist.”

Capital Group spans $157 billion in ETF assets, all of which are actively managed. Research from Capital Group found that 45% of Gen Z, millennial, and Gen X investors said they would be more likely to choose a financial professional who includes active ETFs in their investment approach.

“Many advisors are looking to scale their practices and gain efficiency by leveraging model portfolios, and ETFs are a great ingredient in those model portfolios,” says Davis. “It gives the advisor more time to spend with clients, [and] the ability to grow their practice and spend more time on that. It delivers a consistent, repeatable outcome to the clients in that advisor’s book of business.”

Surging inflows into active ETFs have J.P. Morgan projecting that the entire US ETF market will reach $25 trillion by 2030. J.P. Morgan also forecasts that the global fixed-income ETF market will nearly double from roughly $3.6 trillion today to $7 trillion by 2030. Municipal bond ETFs account for a growing fixed income product within AllianceBernstein.

“Fixed income continues to grow, especially active fixed income,” Guntz says. “In the US, the muni space with an ever-increased focus on taxes, we’ve seen a lot of conversations around our muni ETF lineup and how clients can use that in their portfolios.”

The ETF marketplace has grown to about 420 providers, according to Maier. Fee dynamics for RIAs to access ETFs from distributors like Fidelity and Schwab are changing. Since 2024, Fidelity has charged a service fee to ETF providers that can take as much as 15% of a fund’s annual revenue.

More recently, Barron’s reported that Fidelity has penalized ETF companies that won’t pay service placement fees, charging the ETFs’ end investors 5% of each trade’s value, up to a maximum of $100. The number of ETFs subject to Fidelity’s 5% service fee surcharge more than tripled − from 28 to 97 − between November 2025 and August 2026, per Fidelity’s website.

“Our longstanding approach has been to maintain a consistent framework across investment products. As the support, service, and infrastructure required to serve the growing ETF marketplace have expanded in recent years, that approach has evolved accordingly,” a Fidelity spokesperson tells InvestmentNews. “We continue to work closely with asset managers, as we always have, to reach outcomes that support investors and reflect a more consistent approach across mutual funds and ETFs.”

ETF platform fees are also coming to Schwab, the leading custodian for RIAs ahead of Fidelity. “At Schwab, we remain committed to working in close partnership with the asset management community to deliver solutions that serve our clients’ best interests,” says a spokesperson for Schwab, adding the fees will start by early next year.

“As our ETF platform grows in scale and sophistication, we have begun thoughtful, often bespoke, conversations with asset managers regarding platform fees. These discussions are expected to take place throughout this year, with implementation taking effect no later than Q1 2027. Our goal is to maintain and enhance the platform so we can continue delivering value to both asset managers and Schwab clients,” says Schwab.

Smaller ETFs run by boutique firms make up most of Fidelity’s eligible service fee list, with Roundhill Investments having the biggest presence as of August. The Roundhill Memory ETF consisting of microchip stocks amassed $25 billion in assets after hitting $1 billion within its first 10 days in April.

“I think distributors are looking at fee structures going forward as the marketplace changes, as there’s conversions from mutual funds to ETFs. That potentially could increase costs on the issuer side,” says Maier. “So I think you’ll see changing dynamics, and the markets will adjust accordingly.”