Investors are pouring trillions of dollars into actively managed exchange-traded funds, but the increasingly popular products may come at a steep price. Active ETFs often charge higher fees than low-cost index funds, and high fees have long been associated with costly underperformance.
Active ETF assets hit a record $2.5 trillion in May, according to research firm ETFGI. More than 80% of ETF launches were active last year, according to Morningstar. And growth is accelerating: Active ETFs recorded $412 billion of net inflows through May—almost twice the level over the same period a year earlier.
Investors are flocking to ETFs for their daily liquidity, tax efficiency, and access to asset classes like cryptocurrencies, options strategies, and other alternatives.
Fund companies are launching so many ETFs partly to help stem declines in mutual fund assets, down nearly $2.7 trillion over the past four years, including $640 billion in 2025.