Active ETFs: time and tide wait for no man

My thesis for the still rather New Year: “Active ETFs” will steal a march on traditional active asset management faster than many in the German industry would like to admit. There are clear signs of this: disproportionate growth of active ETFs, especially in the United States; changing buying behaviour, especially among younger customers, and, of course, the cost argument. Only the communication of this form of investment is still lagging behind its net inflows – possibly because some investment companies are struggling with the passage from traditionally active to predominantly passive business.

Schroders has it, Jupiter, Fidelity anyway and now also M&G – the salvation in a world of shrinking returns seems to be the “active ETF” for more and more investment companies: not a pure exchange-traded fund (ETF), but an actively managed index in which certain stocks are favoured and others downgraded.

How active portfolio managers want to be is up to them. World market without the “Magnificent Seven”? Not a good idea, but not a problem. All listed defence stocks, but not those from the US? Here you go! In fact, most companies have so far shown limited willingness to customise their strategies, says Morningstar analyst Natalia Wolfstetter: “By and large, the strategies behind active ETFs tend to be index-oriented.”

Volume in active ETFs is growing faster than in traditional ETFs

There is definitely enough money: globally, assets managed in actively managed ETFs reached a new high of USD 1.86 trillion at the end of November 2025, according to the analysis company ETFGI. This is slightly less than a tenth of the global assets under management in ETFs and exchange-traded products (ETPs) of around USD 19.4 trillion (November 2025).

At around 40 per cent, the majority of global inflows into active ETFs are still attributable to the US. However, the number of newly launched active ETFs and net assets are also increasing in Europe: by the end of October, assets in this form of investment had exceeded the EUR 100 billion threshold, according to another fund data provider, LSEG Lipper. This is only just under four per cent of the total volume in European ETFs. However, the net inflows of active ETFs are growing four times faster than those of traditional ETFs, which had already overtaken active funds in terms of new money by 2024.

Swiss army knife or reaction to eroding business?

While many providers praise active ETFs as “the best of both worlds” (allegedly active management at favourable ETF prices), critics have their doubts.

Morningstar analysts see them as a fear-driven reaction to the eroding active business. For other experts, such as Michael O’Riordan from Blackwater ETF, active ETFs are above all a “good opportunity to launch new products on the market.” The continuing demand for ETFs proves them right, as Christian Machts, new Country Head for Germany and Austria at Franklin Templeton, says: “No matter what type of distribution you do, you can’t avoid the topic of ETFs!”

But if in future more and more data for individual stock selection is automatically compiled and analysed by AI and the portfolio manager only has to press the “Execute” button at the end, urgent questions arise.

How credible is the active manager of yesterday in the automated world of today?

On the one hand, the question of the portfolio manager’s job existence. On the other: How can an active manager stand out from the competition in this fully automated world (other than through persistent outperformance, easy-peasy)? But also: How credible is the active manager of yesterday, with his thousands of researchers, analysts and portfolio managers around the globe, if he jumps on the ETF bandwagon?

But above all, does the distinction between “active” and “passive” still matter to a new generation of investors who no longer know what to do with buying actively managed funds through a bank or broker and a five percent front-end load?

Key terms “expertise” and “credibility”

This new generation of investors has discovered funds and ETFs in particular, as the latest survey by Deutsches Aktieninstitut (DAI) shows: Only a quarter of over-40s invest money in ETFs, compared to just under half of younger people. They also have different priorities and requirements when it comes to investments. “Authority” and “authenticity” – proven expertise and credibility – are key concepts for them.

Hard figures prove that these are not just empty marketing slogans. According to “The Global 100″ study by Peregrine Communications on the brand awareness of the world’s largest asset managers, companies with a low score in the “authority” category not only achieve high growth in their assets under management (AuM) less frequently – they also suffer AuM losses more often. Companies with low authority are more likely to lose assets.

“Credibility” is an increasingly important currency among younger investors, as Ernst Young noted in their “2025 Global Wealth Research Report“: “Millennials are more likely than average to make choices based on non-financial factors, such as value-based investing, company diversity, philanthropic advice and social media content.”

For younger investors, it’s about more than just the return after costs. This is basically the entry ticket to get into the dialogue in the first place. An asset manager should explain this unequivocally: Why are they increasingly offering semi-active and passive strategies? What exactly is the benefit for the customer? And is the shift a real evolution or a forced reaction?

Communicating such a decision credibly, both in marketing and in public relations, is an important step for an investment company. Not taking it and hoping that the public will understand the switch to “active ETFs” on its own harbours the risk of becoming untrustworthy.