How a new era of active ETF innovation is empowering investors

Key takeaways:

• Active ETFs are growing. Adoption continues to accelerate with global active ETF AUM expected to triple by 2030 to $4.2 trillion.
• In our view, active ETFs are poised to deliver in the current market environment as alpha-generation and risk management are top of mind for many investors.
• More active ETFs are launching to meet investor needs, but they’re not all created equal. Their investment objectives will vary across alpha-seeking, outcome, and exposure funds.
• Increased usage is being driven by a range of factors from tax efficiency and transparency to shifts to fee-based advisory practices and model usage.

Introduction:

Assets in the ETF structure continue to grow, with actively managed strategies representing an increasingly significant portion of this growth. Although active ETFs comprise just 8% of total ETF assets, they’re rising fast¹. Active ETF assets under management reached $1.4 trillion globally through the first half of 2025, with $250bn in global NNB over the same time period². We expect this pace to continue given increasing innovation and demand, and for global active ETF AUM to triple to $4.2 trillion by 2030³.

We expect active ETF AUM to reach $4.2T by 2030
Actual and projected growth of active ETFs (USD billions)

While the growth prospects are clear, the question remains of what’s driving this growth? And what does it mean for portfolios?

The market matters- why now for active ETFs?

To fully understand the potential benefits and use cases of active ETFs, it’s important to first understand the benefits of active management. As macro uncertainty and geopolitical fragmentation continue to rise, so does market volatility. Greater differences in the performance between companies, sectors, geographies and asset classes can create opportunities for skilled managers to generate above-benchmark returns, or alpha⁴. Increased volatility also reminds investors of the importance of risk management, as active portfolio managers can react in real-time to evolving market conditions.

So, when does it make sense to use an active ETF vs traditional index exposure? One potential example is investing in global infrastructure. There’s a ton of dispersion in the infrastructure space, whether it be in different regions or different sectors such as energy, telecom, ports, and roads- different potential investment opportunities are being created. Active management may help navigate these complexities within listed infrastructure. Investors interested in taking an active approach to infrastructure investing may consider the iShares Infrastructure Active ETF (BILT)

The ETF wrapper itself has many benefits: it’s fully transparent, disclosing portfolio holdings daily. This helps advisors get a holistic view of their whole portfolio, especially when using tools like BlackRock’s 360 Evaluator. ETFs also trade like stocks during market hours on exchanges, aiding liquidity and advisors’ ability to reallocate amid changing market conditions.

More products are being launched to help build a robust toolkit for investors

Meanwhile, active ETFs have accounted for 51% of global ETF launches through June 2025, with U.S. active ETF launches outnumbering index launches by a margin of nearly 7:1.³ But not all active ETFs are created equal - they’re versatile, coming in different shapes and sizes, cutting across a wide spectrum of strategies and asset classes. To help sort through the noise, we present the active ETF universe in three broad categories.⁵

1. Alpha-seeking

Alpha strategies seek to outperform a benchmark based on proprietary research and insights. Including both fundamental and systematic strategies.

• Example: Rotation strategies, which dynamically adapt exposures based on market regimes, sentiment, crowding, factors, and/or themes. Investors interested in seeking growth potential through active rotation across U.S. equity factors may consider the iShares U.S. Equity Factor Rotation Active ETF (DYNF). Or, those who are interested in targeting dynamic exposure to evolving transformative themes may consider the iShares U.S. Thematic Rotation Active ETF (THRO)

2. Outcomes

Options-based strategies offer targeted investment objectives combining or modifying market exposures via the use of derivatives or portfolio construction

• Example: Outcome-oriented strategies, targeting income, growth or capital preservation may seek a higher degree of predictability. Investors interested in seeking monthly income from options and dividends of large-cap stocks may consider iShares Advantage Large Cap Income ETF (BALI)

3. Exposures

Non-index strategies feature access to segments of the market that may be difficult to index including: cash or commodities

• Example: Sector strategies targeting exposure to a focused segment of a particular sector or area of the market such as technology. Investors seeking exposure to U.S. tech companies with a greater proportion of technological capabilities, revenues, and production in the U.S. may consider the iShares U.S. Tech Independence Focused ETF (IETC)

What’s driving the use of active ETFs?

There are numerous factors driving the growth of active ETFs, from an evolving regulatory landscape to the growth of fee-based advisory practices and models usage. Active ETFs provide a way for advisors to help differentiate their practices and models. In fact, Registered Investment Advisors (RIAs) are the largest user of active ETFs, representing about 45% of all active ETF assets in the U.S.⁶

The growth of models and active ETFs have propelled each other. In 2025, launches of models that allocate mostly to active strategies have outpaced others by over two times⁷. Model portfolios are aided by the transparency, flexibility, and tax efficiency of the ETF. The percentage of models holding at least one active ETF has risen in recent years, while the average weight to active ETFs for those models is also expanding⁸.

Another large driver of usership? Tax efficiency- because of the ETF’s unique structure, there are two distinct ways in which they can provide greater tax efficiency relative to other fund structures or direct ownership in single securities. First, investors buy and sell ETF shares on exchange transactions with other investors. As a result, the ETF manager doesn’t have to sell holdings, which would otherwise potentially create realized capital gains for remaining investors—to meet investor redemptions . Second, the in-kind creation and redemption process utilized by some active equity ETFs means that the ETF manager may have the opportunity to deliver shares that would otherwise have been sold in a portfolio rebalance, limiting the number of taxable events that occur within the fund.

This process helps make active ETFs more tax efficient than their mutual fund peers:⁹

Active ETFs have tended to pay out less in capital gains vs. active mutual funds
Percentage of funds that paid capital gains and average capital gains size (%) from 2020-2024.

Looking ahead

We believe active ETFs are enabling a broad set of investors to efficiently access the next frontier in investing innovation and that they're a core part of the modern investor’s toolkit—offering the best of both worlds: active management and the efficiency of the ETF wrapper.

As the industry evolves, so does opportunity, giving investors the potential to unlock value by accessing new strategies and markets in the ETF wrapper in their portfolios.

Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index.

To obtain more information on the fund(s) including the Morningstar time period ratings and standardized average annual total returns as of the most recent calendar quarter and current month end, please click on the fund tile. The Morningstar Rating for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure (excluding any applicable sales charges) that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.