Active ETFs have existed in some form for many years, but they have been overshadowed by the combination of actively managed Oeics and passive tracker ETFs.
The products have been gaining ground in the UK and European market fast in recent years though, and there has been further acceleration during 2026.
Year-to-date inflows as of the beginning of October have reached €28.9bn (£24.35bn), according to Morningstar data, bringing total assets in the products in Europe to €117.1bn. This accounts for 3.4% of total ETF assets across the continent.
While not an insignificant proportion, it is dwarfed by the equivalent number for the US, where active ETFs account for 13.1% of all ETF assets. Across the Atlantic, some of the biggest names in fund management, such as Cathie Wood and Tom Lee, have made active ETFs a central offering rather than an add-on to a much bigger mutual fund range.
In terms of investment industry development, the UK and continental Europe generally follows where America leads, albeit slowly. The precedent is clearly established with passive tracker ETFs taking off in America before the UK and others followed.
If this holds, which looks likely, we will see the market share of active ETFs keep grinding higher. At least, until the gap in total asset percentage with the US is significantly smaller.
A question of cost
There has been a steady stream of active ETF launches in the UK and Europe over recent months, with many of the larger asset managers having joined the party now.
A total of 118 active ETFs launched across the continent in the year to September, taking the total number of active ETFs in the market to 377.
The advantages over Oeics are very clear. Cost is number one, followed by the near-instant liquidity that being listed on a stock exchange brings. Morningstar numbers show average active ETF fees are 40 basis points lower than the average active mutual fund.
This is enabled by lower back-office costs, smaller investment teams in general, and being able to roll the marketing into wider budgets across firms more easily than with Oeics, which often operate more like a separate small business within an asset management company.
Having near-instant liquidity versus the multi-day wait for Oeic withdrawals should not be underestimated in its appeal. From the retail investor with a few thousand pounds, to institutions with billions to invest, everyone likes being able to get their money in and out of the market more quickly.
There are many reasons for this, ranging from simple convenience and impatience, to serious concerns around minimising losses during times of market turmoil.
An open question
Taking ETF form opens up entirely new markets and use cases for active fund managers, given the liquidity needs of hedge funds and traders of various kinds.
Arguably, active ETFs are also a particular threat to investment trusts. The liquidity element matches a big selling point of trusts, with lower fees in most cases. Something that seems to still be an open question at this stage is whether they will perform better than trusts in terms of trading at or above net asset value.
Many trusts have struggled to command share prices that match or exceed NAV in recent years, so active ETFs have an opportunity to take advantage of that if they can avoid doing the same thing on a widespread basis.
The big weakness, of course, is one they share with actively managed Oeics. Performance net of fees that beats a passive ETF in a given asset class is not easily achieved.
It is unlikely investors will have any greater tolerance for an active ETF that consistently underperforms cheap tracker ETFs than is the case with Oeics.
