iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
Find out more about iShares US Factor Rotation Active ETF (IACT):
https://www.blackrock.com/au/products/343627/
This product is likely to be appropriate for a consumer:
• who is seeking capital growth and/or income distribution
• using the product for a core component of their portfolio or less
• with a minimum investment timeframe of 5 years, and
• with a high to very high risk/return profile
In the US, active ETFs now outnumber passive for the first time in the ETF industry’s more than 30-year history. Following the launch of iShares’ first active ETF in Australia, we look at what’s driving the rapid growth of active ETFs, and why they’re becoming more attractive to investors and advisers alike.
Key takeaways
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01
Active ETFs still make up a small percentage of the overall ETF market, but have recently achieved rapid growth in assets under management both globally and in Australia1
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02
The rise of active ETFs is mirroring that of model portfolios, as financial advisers look for efficient solutions to outsource portfolio construction and enhance returns
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03
Active ETFs may be a helpful tool in advisers’ arsenal alongside passive strategies, particularly in the current environment of heightened market volatility and uncertainty
Small but mighty
Despite still being a small proportion of the overall ETF market globally, active ETFs have achieved a rapid rise in recent years. As of June 2025, active ETFs represent 9% of global ETF industry AUM, compared to 2% at the end of 2019.2
Much of this growth is being driven by fund manager innovation and new launches, with 49% of all ETF launches globally in 2024 being active ETFs.3
In the US, a whopping 80% of ETF launches last year were active, as new Securities Exchange Commission regulations in particular, create more consistency and flexibility around bringing new active ETFs to market. As of June 2025, active ETFs in the US reached the milestone of outnumbering their passive counterparts for the first time in the US ETF industry’s 30-year history, with 51% of the around 4,300 ETFs in the US now being active.4
In Australia, simplification of naming conventions between active and passive ETFs to boost transparency and provide easier guidance for product providers has helped to see a proliferation of new active ETF launches. Active ETFs make up 37% of all ETF listings in Australia and over 15% of total ETF industry assets under management.5
Since 2018, active ETFs in Australia have recorded a compound annual growth rate (CAGR) of around 53% in assets under management (AUM), more than double the 27% CAGR seen in passive ETFs over the same period.6 The ASX also predicts that in the 2025-26 financial year, active ETF launches will outpace passive ETFs for the first time in Australia.7
As investors navigate a new market regime of greater volatility and uncertainty in the post-COVID economic environment, we expect active ETFs to continue to grow in popularity as a complement to other fast-growing investment product categories like alternatives, direct indexing, and traditional managed funds. BlackRock projects active ETFs to reach US$4 trillion in assets under management globally by 2030 (see chart below).
Projected growth in global active ETFs to 2030
Source: AUM in USD. BlackRock as of June 2025. Estimates are for global figures and include 2027 and 2030 calculations based on proprietary research by BlackRock Global Product Solutions. Subject to change. Forecasts may not come to pass.
An evolving industry
As regulatory change and industry product innovation have driven the growth of active ETFs, so too have the rise of model portfolios as a vehicle of choice for many financial advisers across the globe. As the advice industry globally has shifted from commission-based models of the past to flat-fee for service, advisers have embraced model portfolios for their ability to efficiently outsource portfolio management and leave more time for value-adding client conversations.
In the US, more than 1 in 3 advice practices now use active ETFs in their models, with an average allocation of 20% to active ETFs among practices who use them.8 This has coincided with the model portfolio industry in the US doubling in assets from 2021-2025, to a total of US$646 billion as of March 2025.9
With the Australian models industry achieving a similar trajectory, it’s likely Australia could see similar growth in active ETFs as they are embraced for their ability to conveniently complement existing ETF model portfolios. As discussed in our recent insights piece, managed accounts in Australia have grown from $10 billion to $200 billion in assets over the last decade10, and active ETFs may soon be added to more Australian models as an affordable way to access active management.
Individual investors too are showing more interest in active ETFs offshore as many digital wealth platforms adopt lower trading fees. This combined with the ease of access active ETFs offer compared to managed funds, has driven an increase in retail investor holdings in active ETFs in the US – from 7% of all active ETF AUM in 2016, to 12% in the first quarter of 2024.11
Why active ETFs?
When it comes to active ETFs versus managed funds, a major feature that investors tend to appreciate is their tax efficiency. Because investors buy and sell ETF shares on exchange, the ETF manager doesn’t have the same need as an unlisted fund manager to sell holdings to meet investor redemptions, which can potentially create realised capital gains for the remaining investors in an unlisted fund.
In the US, the in-kind creation and redemption process that active ETFs use also means the US ETF manager may have the opportunity to limit the number of taxable events that occur within the fund. This benefits Australian investors in ETFs such as the iShares U.S. Factor Rotation Active ETF (IACT), which has a US-listed underlying fund.12
For those used to investing primarily in passive ETFs, incorporating active insights through the same transparent and efficient vehicle can help investors in many ways. The current increased market volatility is making traditional return sources less predictable, creating more opportunity for active managers – as seen in the chart below, this year so far we have see almost all of 2024’s top performers reverse their gains.
Equity performance, 2024 vs 2025 year to date
Source: BlackRock Investment Institute, MSCI, with data from Bloomberg, 29 April 2025. The “magnificent 7” index includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Index proxies: Bloomberg US Large Cap ex Magnificent 7 for U.S. large caps, MSCI USA for U.S., MSCI Europe for Europe, MSCI World ex. USA for Rest of the World, MSCI Emerging Markets excluding China for Emerging markets ex. China, MSCI China for China
Against this backdrop, active funds with strong performance track records – such as IACT, whose underlying US ETF is one of the few funds with a consistent track record of outperformance against the S&P 500 Index13 - may be able to capture more alpha opportunities for their investors.
Active management also allows for additional layers of proprietary research and dynamic market signals on top of the traditional indexing used in passive ETFs, giving managers more freedom to respond to market inflection points. If an investor therefore chooses an active ETF as a ‘building block’ within their broader portfolio, they can potentially benefit from another level of risk management and enhanced risk-adjusted returns over time.
These are some of the reasons why we believe active ETFs will continue to grow in investor popularity and interest over the coming years. To learn more about active ETFs and the IACT strategy, visit our active ETFs homepage.
