Exchange-traded funds (ETFs) are widely synonymous with passive investing. So much so that when investors ponder how to invest in index funds, many instinctively turn to ETFs.
ETFs’ links to passive, or index-based, investing are among the reasons why the asset class was once viewed as a threat to active mutual funds. That perceived threat was enhanced by the facts that ETFs trade like stocks (all day while the market is open), offer tax perks relative to mutual funds (minimal odds of capital gains distributions), and generally feature lower fees.
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The rise of active ETFs could boost shares of select asset managers. Image source: Getty Images.
That speaks to the advantages inherent in the ETF “wrapper” and underscores why so many investors evaluating how to invest in mutual funds simply switch to ETFs. Some asset managers got the memo, and rather than forcing themselves into the ultracompetitive world of low-cost passive ETFs, they are breathing new life into active management by bringing that style to ETFs.
Don’t just take my word for it. In the first quarter, investors poured $245.2 billion into US-listed active ETFs, toppling records set last year. That momentum has continued throughout this year. Last month, actively managed ETFs trading in the U.S. tacked on nearly $63.6 billion in fresh assets, bringing the year-to-date tally to $466.8 billion, well ahead of the $263 billion pace seen in the comparable 2025 period.
The tidal wave of inflows into active ETFs has implications for fund and single-stock investors and could affect some well-known names over the long term.
A list of the largest active ETFs reveals a who’s who of the fund management realm, but many of the top dogs in the space are private companies, including Dimensional Fund Advisors and Fidelity. Vanguard, the king of low-cost passive investing, is a rising star in the world of active ETFs.
Among publicly traded active ETF kings, BlackRock (NYSE: BLK) and JPMorgan Chase (NYSE: JPM) are two of the most recognizable names. Thanks to a robust lineup of active bond and options income funds, JPMorgan sponsors some of the largest non-passive ETFs. However, this is the largest bank in the U.S. with its hands in a lot of pies. Although JPMorgan’s ETF business is undoubtedly successful, it contributes a scant percentage (by some estimates, a mere 1%) to the bank’s overall earnings.
BlackRock is a different ballgame. Across ETFs and other structures, the company controlled $3.6 trillion in active assets under management as of the end of June. Add to that the estimate that actively managed ETF assets will swell to $4.2 trillion globally by 2030. BlackRock is also increasingly deploying active ETFs in its model portfolios. Put it all together, and the asset manager is making clear that active ETFs are integral parts of its long-term growth plans.
Another publicly traded active ETF purveyor investors may want to keep an eye on is T. Rowe Price (NASDAQ: TROW). Up 9.6% this year, the stock’s performance has been middling, but that may also be a sign that markets aren’t fully appreciating this asset manager’s active ETF story.
Long a leading provider of actively managed mutual funds, T. Rowe Price is leveraging that experience to succeed in the active ETF space. Rather than reinventing the wheel, T. Rowe Price (in some cases) introduces ETF versions of some of its popular mutual funds. Same branding and same management teams, so there’s an element of familiarity that end users enjoy. Investors’ embrace of the familiar shouldn’t be underestimated, and that could be a sign that active ETFs will be additive to T. Rowe Price’s long-term growth story.
The rise of active ETFs presents challenges to some asset managers and their investors. Legacy mutual fund issuers that don’t lead or follow risk will be left behind. However, market participants should be cautious regarding which names they gloss over due to perceived threats from active ETFs.
Franklin Templeton (NYSE: BEN) may once have been mentioned in that vein, but the financial services stock is up 42.2% year to date, confirming that its long-running pivot to ETFs, both active and passive, is paying off. Not to be understated is the fact that the company has some enviable fund brands, including Brandywine, Putnam, and Royce.
That perk could work in favor of long-term investors as the issuer’s active ETF story crystallizes and markets begin to fully appreciate it as a contributor to upside in the shares.
As for the fund sponsors in the most vulnerable camp, they have options to allay investor concerns and boost share prices. Those include following the T. Rowe Price model of introducing “new” products that are ETF versions of old mutual funds or filing for ETF share classes of existing mutual funds. The latter is a fine strategy as it helped Vanguard become one of the largest ETF issuers in the world. Interestingly, Vanguard’s patent on that methodology expired in 2023, and yes, the asset management community is very much aware of that fact.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BlackRock, JPMorgan Chase, and T. Rowe Price Group. The Motley Fool has a disclosure policy.