Passive ETFs have long been considered the gold standard for cost-conscious investors. But a new generation of actively managed ETFs is taking over the market.
• In the USA, 85 percent of all new ETFs were already actively managed by 2025
• Boundaries between active and passive strategies are becoming increasingly blurred
• US Securities and Exchange Commission paves way for ETF share classes in traditional mutual funds
The boundaries between active and passive are blurring
What exactly is a “real” ETF? Investors asked this question 15 years ago with a clear expectation: an exchange-traded fund had to replicate an index such as the DAX, S&P 500 or MSCI World as accurately as possible. Passive index replication was considered the essence of this asset class. However, this definition is changing fundamentally.
The strict separation between active and passive investment strategies is increasingly disappearing. As Morningstar points out in an analysis dated November 19, 2025, the strict distinction between “active” and “passive” is misleading and hardly does justice to reality. Some passive ETFs make active decisions when weighting risk and return, while some active ETFs hardly differ from broad market indices.
This development has concrete effects on the ETF landscape. According to Morningstar, active ETFs in Europe have now reached 62.4 billion euros (as of August 2025) – a niche that is growing rapidly. A survey by the ETF consultant Blackwater shows the pace of this transformation: While 90 percent of the active fund managers surveyed in 2021 were not thinking about launching ETFs, three years later this rate was only ten percent.
Active ETFs are conquering the market
In the USA, development is already more advanced. According to Fidelity International, almost 85 percent of all ETFs launched in 2025 were actively managed there. The majority of capital still flows into passive strategies – around 35 percent of the approximately one trillion US dollars that flowed into ETFs in 2025 went into active products. But the dynamic is clear: active ETFs are already outnumbering passive ones in the United States.
According to Fidelity, there are currently 250 actively managed ETFs listed on the London Stock Exchange in Great Britain – around one in ten of the total 2,151 ETFs listed. More than $1 trillion is invested in active ETFs worldwide. The cost range for these products is between 0.19 and 0.89 percent annually and reflects the higher expenses for active fund management.
What is driving this development?
ETF providers strive for differentiation and pricing power. Unlike standardized index products, where price competition has pushed margins down to fractions of a percent, active strategies promise higher fees and thus better returns for the fund companies.
New regulations are accelerating change
The merging of active and passive strategies will be further accelerated by regulatory changes. On September 29, 2025, the U.S. Securities and Exchange Commission (SEC) announced that it would approve Dimensional Fund Advisors’ existing mutual fund exchange-traded share classes. This innovation allows investment funds to offer an ETF share class as an additional option.
The advantage lies in tax efficiency: the tax-efficient transactions of the ETF structure can affect all share classes of the fund and thus also make traditional investment funds more tax-optimized. Dozens of other asset managers have filed similar filings with the SEC, according to Morningstar. Once these hurdles are overcome, another wave of active ETFs is likely to enter the market.
This development fundamentally changes the rules of the game. If active mutual funds become as tax efficient as pure ETFs through ETF share classes and at the same time their fees continue to fall, passive ETFs will lose one of their most important structural advantages. In this scenario, the quality of the investment process and the expertise of the fund managers become more important – regardless of whether a product is labeled as active or passive.
What does this mean for investors?
The clear distinction between passive and active ETFs is increasingly disappearing. Investors are faced with a growing choice of intermediate forms: strategies that only move slightly away from the index, funds that specifically target individual risk factors such as valuation or company size, and fully active approaches in which fund managers freely put together their portfolios.
However, it is questionable whether passive ETFs have actually become obsolete. Broadly diversified, low-cost index funds based on indices such as the MSCI World or S&P 500 retain their right to be a core investment in many portfolios. Their low costs, high transparency and reliable market tracking continue to make them the first choice for long-term investors who do not want to make active bets.
The future is more likely to be a coexistence of different approaches. Passive core investments can be supplemented by targeted active components if investors are convinced that a fund manager can actually create added value in certain market segments.
D. Maier / editorial team finanzen.net
