Investors might be more familiar with passive exchange traded funds (ETFs) that track the performance of an index like the FTSE 100.
But active ETFs, which aim to outperform a certain benchmark, have risen in popularity in recent years.
There are now more active ETFs in the US than passive ones.
This is a significant milestone and signals a shift in how investors are using ETFs in their portfolios.
Could this be a sign of what’s to come on our side of the pond?
This article isn’t personal advice. If you're not sure if a course of action is right for you, ask for financial advice. Remember, all investments can rise and fall in value, so you could get back less than you invest. Past performance also isn’t a guide to the future.
Why are active ETFs becoming popular?
Active ETFs are becoming more popular as they have the potential to outperform the market, rather than just track it, while maintaining all the benefits that come with investing in ETFs.
Active management usually involves a fund management team creating a portfolio of investments they think will perform better than a chosen benchmark. Although of course this isn’t guaranteed.
Whereas a passive ETF is simply looking to match the performance of its benchmark.
So, if the index falls in value, the ETF will fall by a similar amount.
However, passive ETFs tend to underperform slightly by design due to the costs involved in tracking an index.
Being able to invest actively within the ETF structure has made active ETFs popular with investors.
How quickly are active ETFs growing?
Active ETFs have grown tremendously, passing $1.5trn in assets this year.
To put that into context, the global ETF industry has around $17trn of assets under management. So, active ETFs still only make up a small slice of the total ETF pie.
But they’re growing rapidly – JPMorgan predicts that they’ll quintuple to $6trn in the next five years.
In 2025 (to the end of July), net new money invested in active ETFs represented 28% of the total amount invested in ETFs globally.
The US leads the charge in active ETF growth
While the rise of active ETFs is a global trend, the US remains firmly at the forefront.
Over the past five years, the number of active ETFs in the US has more than doubled.
Although active ETFs still only make up around 10% of total ETF assets in the US, their growth has been remarkable.
In the past 12 months alone, a record 85% of newly launched ETFs in the US have been actively managed. This highlights a significant shift in investor appetite.
There are a few reasons for this, but the main one is that there are certain tax benefits for holding ETFs over funds in the US, which make active ETFs attractive for US investors. This doesn’t apply to the UK though.
Will Europe follow suit?
Passive ETFs continue to dominate in Europe where active ETFs currently account for just 3% of the total ETF market.
But momentum is building.
In the first seven months of 2025, net new money invested into active ETFs in Europe reached $16.78bn – more than double the $6.74bn recorded over the same period in 2024.
Assets are expected to nearly double this year and surpass $100bn, with forecasts suggesting this could grow to $1trn by 2030.
While Europe might be trailing the US, the demand for active ETFs is clearly accelerating.
How to invest in active ETFs?
For investors interested in active ETFs, you can explore the ETF section of our website where you can search for ETFs by name, company or sector.
You should check an ETFs Key Investor Information to see if it is actively or passively managed.
Because ETFs trade like shares, trading is subject to share dealing charges. However, it’s free to buy ETFs with HL if you invest in them through a monthly direct debit. ETFs will have their own charges – you can check the Key Investor Information for more details.
You should only invest in ETFs if you have the time and knowledge to carefully select and monitor them. They should always be held as part of a diversified portfolio.