Active ETFs: Achieving escape velocity

The active exchange-traded fund (ETF) market is experiencing rapid growth, with assets expanding from $81 billion in 2019 to $631 billion in 2024.

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The active exchange-traded fund (ETF) market is experiencing rapid growth, with assets expanding from $81 billion in 2019 to $631 billion in 2024. Despite this surge, active ETFs still comprise only 6% of total active assets under management (AUM), suggesting significant room for expansion. However, success in the space is not guaranteed. A small number of dominant funds and managers capture a disproportionate share of flows, and early asset accumulation-particularly in the first year-is a critical determinant of long-term success.

The paper outlines three strategic imperatives for managers looking to launch or scale active ETFs:

1. Go with the flow

Success hinges on robust distribution, particularly within Registered Investment Advisor (RIA) channels, which account for the majority of active ETF assets. Managers must align with the right distributors and tailor outreach to platform-specific dynamics, recognizing that entry barriers are higher in broker-dealer and wirehouse channels.

2. Pick a lane

Leading managers have thrived by leveraging one or more of the following: unique investment strategies (e.g., innovation, income), proprietary distribution channels and strong brand identity. While hitting on all three is unlikely, identifying and doubling down on one’s inherent strengths is essential.

3. Less is more

Focused engagement with high-potential advisors who already use active ETFs significantly improves conversion and gross sales. By prioritizing advisor scoring and segmentation, managers can better allocate resources and boost early momentum.

ETF launch trajectory

Average AUM Trend Based on AUM Raised in Year 1
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Source: Broadridge Data & Analytics
Note: represents 814 active ETFs with a track record of at least three years.

To date, success in active ETFs has been highly correlated with first-year asset raising. The figure above shows the three-year trajectory of active ETFs based on how much was raised in the first 12 months. Only 11% raised more than $100 million in year one. This group has grown significantly and now exceeds $1 billion on average; in total, it represents two-thirds of active ETF assets. In contrast, those raising less than $100 million in their debut year have languished, on average, failing to eclipse the $200 million mark. Note: data does not include conversions or fund closures.

Other key insights in this report include the diversification of active ETFs beyond bonds to equities and niche strategies, declining concentration among top managers and the critical role of tailored incentive structures for internal sales teams during the launch phase.

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