Active ETFs in 2025: What They Are and Which Are The Best?
13 Min read | Invest
What Is An Active ETF?
An active ETF is an Exchange-Traded Fund that is managed by professional portfolio managers. They make specific investment decisions to try to earn more money than the market normally would. In contrast, a passive ETF copies market indices (like the S&P 500) without trying to beat it.
Active ETFs are popular as not only do you get professional active management, you get: tax efficiency, the ability to trade throughout the day, transparency, and typically lower costs than traditional mutual funds. It's no wonder active ETFs have become so mainstream!
Let's dive deeper into what active ETFs are, how they work, and which ones might be right for you.
Key Facts About Active ETFs
Active ETFs surpassed $1 trillion in U.S. assets in 2025, marking a major milestone in the investment industry's evolution.
Global active ETF assets are projected to triple from current levels to $4.2 trillion by 2030.
For the first time in history, the number of active ETF launches now exceeds passive ETF launches, with 88% of U.S.-listed ETF launches in 2025 being active strategies.
Active ETFs typically charge 0.69% in expense ratios versus 0.89% for active mutual funds, saving investors money.
Only 4% of active ETFs distributed capital gains in 2023, compared to 34% of active mutual funds, creating significant tax advantages for investors in taxable accounts.
Active ETFs provide daily transparency of holdings, so you always know exactly what you own.
They trade intraday like stocks with real-time pricing, giving you flexibility to buy or sell whenever markets are open, not just at end-of-day prices.
You can invest in active ETFs for as little as the price of one share (often under $100).
How Active ETFs Work: Why Are They Popular?
Here we tell you a little more about how active ETFs work, and thereby also explaining some of their incredible benefits!
Flexible Trading
- You can buy or sell an active ETF any time the market is open at the market-determined price, just like stocks!
Tax Efficient
- When shares need to be sold, they return ETF shares and receive the underlying securities in a process called 'in-kind redemption'. See our article for a deeper explanation on our that works.
- Here's why that matters for your wallet: When securities are transferred rather than sold, the fund avoids capital gains (taxable event).
Trading Tools
- Since they trade all day, you can use limit orders, stop orders, and other trading strategies.
- Want to buy only if the price drops to a specific level? You can do that. Want to automatically sell if the price falls below a certain threshold? That's possible too.
Low Minimum Investments
- You can get started with just one share, often costing less than $100.
- For ETFs that use fractional shares, you can deposit even less! Making ETFs available for people from a wide range of socio-economic backgrounds.
Types of Active ETFs
Active ETFs vary based on their transparency model and which investment strategy is used by the portfolio manager. Let's take a look at this in more depth below.
Transparency Models
Active ETFs come in two transparency flavors:
Fully Transparent
They disclose their complete daily holdings before the market opens. This is the dominant model, accounting for the vast majority of active ETFs. You know exactly what you own at all times.
Semi-Transparent or Non-Transparent
These publish proxy portfolios instead of the full holdings to protect proprietary strategies while providing enough information for accurate pricing.
However, these funds face significant restrictions: They can only invest in exchange-listed common stocks, ADRs (American Depositary Receipts), GDRs (Global Depositary Receipts), ETFs, and exchange-traded notes that trade during the same hours. That means no investments in foreign stocks trading only on overseas exchanges or private securities.
Investment Strategies
Now let's talk investment strategies, because this is where active ETFs really shine with variety:
Alpha Seeking Strategies
- Use traditional research and analysis to identify undervalued securities.
- Common sub-styles include: Value: buying cheap or overlooked stocks Growth: targeting companies with strong future earnings potential Blend: a mix of value and growth
- Managers analyze financial statements, meet with company executives, and assess competitive positioning to make investment decisions.
Derivative Income Strategies
- These make money by selling the right (a.k.a. option) for someone else to buy their stocks at a set price in the future.
- The buyer pays the ETF for this right, and that payment becomes income for ETF investors. If the buyer doesn’t use the right in the future, no matter! The ETF simply keeps the money.
- Derivative income strategies have exploded in popularity. Funds like JPMorgan Equity Premium Income ETF (JEPI) sell covered call options on their stock holdings to generate premium income.
Outcome-Based Strategies
- Also known as 'defined outcome' ETFs, add extra 'buffered' options to protect you from losses when you buy an ETF. These are great for people who want an extra security on their investment, such as someone about to retire.
- Example: You buy a defined outcome ETF which will protect you from the first 10% of your losses (should there be any!) after a set period of time (usually one year). However, the trade off is that if you make a profit, this will be capped at say, 15%.
- You can sell your defined outcome ETF at any time if you wish, but the buffered protection option, if needed, can only be used when you stay invested for the entire period.
Thematic Strategies
- Target innovation themes like artificial intelligence, robotics, genomics, clean energy, or cybersecurity.
- These funds let you express a view on where the economy is heading without picking individual stocks.
Best Active ETFs and Leading Providers
3 firms dominate the active ETF landscape.
- Dimensional Fund Advisors - Managed $109 billion in active ETF assets at year-end 2023, making them the undisputed leader.
- J.P. Morgan - Followed with $51 billion.
- Avantis Investors - Held $33 billion.
Together, these three control over half of all active equity ETF assets. Others to consider are:
- Capital Group - Has made aggressive moves, launching 25 active ETFs since 2022.
- Fidelity - Pioneered nontransparent active ETFs to protect proprietary strategies.
- T. Rowe Price - Brought their legendary research capabilities to the ETF wrapper.
- Vanguard - The passive investing pioneer, launched the VGHY high-yield active ETF in September 2025 with a rock-bottom 0.22% expense ratio.
If you've read up until here, and you want some examples of active ETFs? We've got you covered in our article: Best ETFs to Buy Now
Otherwise, let's look at specific funds that have attracted serious assets and delivered results.
| ETF | Strategy | Key Features | Expense Ratio |
|---|---|---|---|
| JEPI – JPMorgan Equity Premium Income ETF | Derivative Income | Uses a covered call strategy to generate steady income from option premiums | 0.35% |
| DFAC – Dimensional US Core Equity 2 | Alpha-Seeking | Broad U.S. exposure using Dimensional’s factor models | 0.17% |
| DFAT – Dimensional US Targeted Value | Alpha-Seeking | Focuses on value stocks trading at discounts to drive long-term performance | 0.28% |
| CGCV – Capital Group Conservative Equity ETF | Alpha-Seeking | Lower-volatility equity strategy designed to deliver smoother performance | 0.33% |
| TCAF – T. Rowe Price Capital Appreciation Equity | Alpha-Seeking | Growth-oriented stock picking based on T. Rowe’s research | 0.31% |
| AVUV – Avantis US Small Cap Value | Alpha-Seeking | Targets small undervalued companies; strong historical performance | 0.25% |
| ARKK – ARK Innovation UCITS | Thematic (Innovation) | Invests in disruptive innovators across tech, biotech, energy, and automation | 0.75% |
| ARKQ – ARK AI & Robotics UCITS | Thematic (Robotics/AI) | Focused on robotics, automation, autonomous vehicles, and AI | 0.75% |
| ARKX – ARK Space Exploration | Thematic (Space) | Invests in space tech, satellites, aerospace, and related innovations | 0.75% |
Active ETFs: Pros & Cons
Lower Costs: Core active ETFs often charge 0.20–0.50%, compared to 0.60–1.00% for similar mutual funds - savings that compound meaningfully over decades.
Superior Tax Efficiency: In-kind redemptions help avoid capital gains. Only 4% of active ETFs paid capital gains in 2023 versus 34% of active mutual funds, saving high-income investors over 1% per year in taxes.
Daily Transparency: You can see all holdings every day, ensuring the manager sticks to the stated strategy with no surprises.
Intraday Trading & Liquidity: Buy or sell anytime the market is open, and use tools like limit orders and stop-loss orders — flexibility mutual funds don’t offer.
Low Minimums: You can start with just one share (often under $100), making professional management accessible to smaller investors.
Potential Outperformance: Skilled managers may beat benchmarks, especially in less efficient markets like small-cap stocks, emerging markets, and fixed income.
Wide Strategy Choice: From derivative-income funds to buffered outcome-based strategies to thematic ETFs (AI, robotics, clean energy), active ETFs offer strategy types not available in passive products.
Restricted Opportunity Set: Active ETFs cannot invest in private markets or venture capital, and semi-transparent ETFs face even stricter rules, limiting them to exchange-listed securities.
No Guarantee of Outperformance: Results depend entirely on manager skill. Fees reduce returns, and in highly efficient markets (like large-cap U.S. equities), consistent outperformance is rare.
Short Track Records: Many active ETFs are newly launched and lack full market-cycle performance history, making it harder to judge the manager’s reliability across different conditions.
Trading Costs: Investors face bid-ask spreads and possible premiums/discounts to NAV, especially in newer or less liquid ETFs, which can make buying or selling more expensive.
Capacity Constraints: When an active ETF keeps growing and can’t close to new investors, the large inflows may force the manager to invest in less optimal opportunities, diluting performance - a problem known as ‘capacity constraints.'
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The Future of Active ETFs: Growth Projections and Emerging Trends
The active ETF revolution is in full swing, fundamentally transforming investment product delivery by combining the potential for outperformance of active management with the tax efficiency and trading flexibility of the ETF structure. This isn't a fad; it's a mainstream alternative to both passive ETFs and traditional mutual funds
Projected Explosive Growth
Projections show massive acceleration, driven by investor demand and structural advantages:
- Triple Growth: Global active ETF assets are projected to triple from $1.4 trillion (June 2025) to $4.2 trillion by 2030.
- Investor Intent: Survey data confirms this trend, with 39% of investors globally planning to increase their active ETF allocations.
- Product Momentum: Asset managers are betting heavily on this trend, with 88% of all U.S.-listed ETF launches in 2025 being active strategies.
Key Growth Drivers
The surge is fueled by two primary areas and a major regulatory catalyst:
- Fixed Income Opportunity: Total bond ETF assets are expected to exceed $6 trillion by 2030, with active strategies accounting for roughly $1.7 trillion. A telling stat: 82% of investors expect to boost actively managed bond ETF exposure.
- Outcome-Based Strategies: These ETFs, which offer downside protection for investors (like retiring Baby Boomers), are projected to explode from $181 billion (end of 2024) to $650 billion by 2030.
- Regulatory Catalyst: The anticipated regulatory approval of dual-share class structures (allowing tax-efficient conversion of mutual funds to ETF share classes) is expected to trigger a significant conversion wave, accelerating growth further.
Are Active ETFs Right for Your Portfolio?
Active ETFs are the modern evolution of investment products.
They are quickly becoming mainstream because they successfully merge professional active management with the structural efficiency of the ETF. You get the potential for a skilled manager to outperform the market combined with the ETF's key benefits: lower costs and superior tax efficiency.
Active ETFs are powerful tools for a more flexible and efficient portfolio. Remember to evaluate the manager and monitor the fees to ensure you're getting real value. This is the future of active investing.
Frequently Asked Questions About Active ETFs
What is an active ETF?
An active ETF is an exchange-traded fund where professional portfolio managers make specific investment decisions to outperform a benchmark index, rather than simply tracking it. Active ETFs combine the benefits of professional active management with ETF structural advantages like tax efficiency, intraday trading, daily transparency, and typically lower costs than traditional mutual funds. The 'active' refers to the investment decisions within the portfolio, while the ETF is the delivery vehicle or wrapper.
How do active ETFs differ from passive ETFs?
Active ETFs seek to outperform benchmarks through manager decisions on which securities to buy and sell, while passive ETFs aim to replicate index performance by mechanically holding all index components. Active ETFs typically charge higher fees (around 0.69% versus 0.20% for passive) but offer the potential for outperformance beyond market returns. Passive ETFs guarantee you'll match the index (minus fees), while active ETFs might beat it or might underperform depending on manager skill.
Are active ETFs better than mutual funds?
Active ETFs offer several advantages over mutual funds: lower average costs (0.69% versus 0.89%), superior tax efficiency (only 4% distributed capital gains in 2023 versus 34% of mutual funds), intraday trading flexibility, and lower minimum investments. However, mutual funds allow managers to close funds when they reach capacity and can invest in broader universes including private securities. The best choice depends on your specific situation, tax bracket, and investment timeline.
What are the best active ETFs?
Top active ETFs by assets and performance include JPMorgan Equity Premium Income ETF (JEPI) for derivative income, Dimensional US Core Equity 2 (DFAC) for broad equity exposure, Avantis US Small Cap Value ETF (AVUV) for small-cap value, Capital Group Conservative Equity ETF (CGCV) for lower volatility, and T. Rowe Price Capital Appreciation Equity ETF (TCAF) for growth. The best choice for you depends on your investment objectives, risk tolerance, market segment preference, and whether you're investing in taxable or retirement accounts.
How are active ETFs taxed?
Active ETFs benefit from the in-kind redemption mechanism that creates significant tax efficiency. You realize capital gains only when you sell your ETF shares, not when the fund trades securities internally. Capital gains distributions to shareholders are rare, with only 4% of active ETFs distributing gains in 2023. Dividends and interest income are taxed as ordinary income when received. For high-income investors in taxable accounts, this tax efficiency can save over 1% annually compared to mutual funds.
What are the risks of active ETFs?
Active ETFs carry several risks: no guarantee of outperformance (success depends entirely on manager skill), capacity constraints as funds grow too large for their strategies, trading costs including bid-ask spreads and potential premiums/discounts to NAV, performance volatility when market conditions shift, and short track records for many recently launched funds making manager assessment difficult. Additionally, active ETFs cannot invest in private securities, limiting their opportunity set compared to some mutual funds.
How much do active ETFs cost?
Active ETFs charge an average expense ratio of 0.69%, with ranges from around 0.20% for broad core strategies to 0.50% or higher for specialized thematic or alternative strategies. This is meaningfully lower than the 0.89% average for active mutual funds. Beyond expense ratios, you'll also pay bid-ask spreads when trading, which can range from a few cents to more substantial amounts for less liquid or newly launched funds.
Can active ETFs outperform the market?
Active ETFs have the potential to outperform, particularly in less efficient market segments like small-cap stocks, emerging markets, and fixed income (which has over 3 million unique securities creating opportunities). Success depends on manager skill, strategy capacity, and market conditions. Active bond managers have demonstrated consistent outperformance over 3-, 5-, and 10-year periods in core fixed income. However, in highly efficient segments like large-cap U.S. equities, consistent outperformance after fees is difficult.
What is a semi-transparent active ETF?
Semi-transparent active ETFs publish proxy portfolios instead of full daily holdings to protect proprietary investment strategies while still providing sufficient information for accurate pricing. However, these funds face significant restrictions: they can only invest in exchange-listed common stocks, ADRs, GDRs, ETFs, and exchange-traded notes that trade during the same hours. This prevents investments in foreign stocks on overseas exchanges or private securities, limiting the manager's opportunity set compared to fully transparent active ETFs.
Are active ETFs suitable for retirement accounts?
Active ETFs work well in both taxable and retirement accounts, though for different reasons. In IRAs and 401(k)s, the tax efficiency advantage matters less since gains aren't taxed until withdrawal, but the lower costs and potential for outperformance remain beneficial. In taxable accounts, the tax efficiency becomes extremely valuable, potentially saving over 1% annually for high-income investors. Derivative income strategies like JEPI have become particularly popular in retirement accounts for generating regular income distributions.
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