The growth of active ETFs has certainly been impressive, to say the least. From a niche product with only a few launches back in 2010, the number of active ETFs has swelled to north of 1,800 different funds. More launches are planned as both new and legacy asset managers continue to look toward the vehicle as a way to regain lost growth. The best part is that a key investment demographic is biting, supporting these launches with actual assets.
That would be financial advisors.
According to a new Fidelity survey, financial advisors continued to add and use active ETFs in portfolio construction to deliver additional alpha, tax savings, and other benefits for their clients’ investment goals. With advisors now on board in spades, the growth of active ETFs is assured.
Active ETF Launches & Assets Surge
Active ETFs debuted in 2008, but it wasn’t until recently the number of active ETFs on the market took off. The reasons have been vast. Many of these came from the new SEC regulation, dubbed Rule 6c-11.
New semi- and non-transparent structures that allowed managers to keep their ‘secret sauce’ hidden to prevent front running allowed more investment shops to feel comfortable in the structure. Mutual fund-to-ETF conversions instantly provided new growth and share launches. Copycat fund launches of existing mutual funds using the same managers and styles also boosted growth. And now, exemptions allowing ETFs to operate as share classes of existing mutual funds have plenty of potential to continue this growth.
All in all, active ETFs have transitioned from being a niche product to a significant contender in the investment vehicle landscape. Today, more than 1,840 active ETFs are on the major exchanges. That’s about 240 less than the total number of passive/index funds.
Advisors Drive Growth
All of these funds and having a large toolbox are great. But what truly matters is whether investors purchase the products. According to a recent survey from asset manager Fidelity, it looks like they do… in a big way. More importantly, the ones doing the buying are the key demographic of financial advisors.
Fidelity’s Institutional Division’s latest Investment Portfolio Insights found that advisors have taken a shine to active ETFs across a variety of asset classes and use cases. The asset manager used its own quick check data as well as data from Morningstar to analyze 3,733 portfolio reviews at the end of the fourth quarter of 2024 to create its survey.
According to Fidelity, the average portfolio in its data set was 68% in equities (54% U.S. equities and 14% international), 27% in fixed income, 3% cash, and 2% other such as gold or liquid alts. Additionally, the average portfolio has 13 holdings, six different asset managers, and costs an average of 47 basis points of underlying blended fees. This chart from the survey highlights the composition and is roughly static from the last survey it conducted last year. 1
Source: Fidelity
The key to the data was just how they are building those allocations. According to the survey, 40% of advisors were using active ETFs in client portfolios. That’s up from just 13% in 2022. Around 21% of total assets in the surveyed portfolios were in active ETFs. This is also a big increase versus 2022.
The biggest growth in active ETF usage among advisors remains in the fixed income world. Financial advisors have continued to use active ETFs for their bond allocations as a way to add extra alpha to a fixed income portfolio. Top growth among advisors has been in so-called core-plus and multisector/dynamic income categories. Additionally, many advisors have turned toward active ETFs in the municipal bond category.
However, Fidelity’s survey also found advisors are now betting big on active ETFs within the equity side of the equation. Senior vice president and head of integrated portfolio construction delivery at Fidelity Investments, Mayank Goradia, said, “Our portfolio construction team continues to see extensive interest from advisors in U.S. equities, particularly through active ETFs, for asset allocation in portfolios.” Exposure to active equities ETFs has grown exponentially as investors shift from mutual funds.
Plenty of Reasons Why
It’s easy to see why many financial advisors have turned toward active ETFs for portfolio construction, and the reasons are vast.
The easy one is ETFs’ overall low cost of ownership and lower fee hurdle for active managers to vault over. Most active managers can beat the market. However, those extra gains are only a few percentage points per year. With lower costs, more active managers can deliver those returns to their clients. The low 0.45% average cost per portfolio is a testament to overall lower fees in the space. The asset manager cites the elimination of cash drag as a way managers can help beat their benchmarks. Because managers don’t have to hold cash, unless they want to meet investor redemptions or share sales, they can be fully invested in whatever assets they choose.
Fidelity also cites taxes as a major shift toward active ETFs. The secondary market and authorized participant structure allow taxes to be passed through and avoided by portfolios. This is unlike mutual funds, in which investors are on the hook for whatever happens inside the fund.
The growth in active ETFs in the fixed income sector among advisors is easy to explain as well.
There are over 65,000 fixed income securities in the U.S. alone. However, the major bond indexes fall short of covering a fraction of these holdings. Many times, fixed income indexes will overweight those entities with the most debt outstanding, providing exposure to the biggest debtors. Meanwhile, many leave out whole swaths of the market. But active managers within the bond space can do their own credit research, underweight/overweight duration, certain bond sub-asset classes, etc., to generate higher yields and returns. As such, bonds have quickly become the place for active managers to shine, and many investors (and their advisors) have become in tune with this fact.
Popular Active ETFs
These ETFs are sorted by their YTD total returns, which range from -14.1% to 2.5%. They have expense ratios between 0.17% to 0.36% and have assets under management between $10B to $41B. They are currently yielding between 1% and 12.7%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| FBND | Fidelity Total Bond ETF | $18.1B | 2.5% | 4.8% | 0.36% | ETF | Yes |
| JPST | JPMorgan Ultra Short Income ETF | $30.7B | 2% | 4.6% | 0.18% | ETF | Yes |
| MINT | PIMCO Enhanced Short Maturity Active ETF | $12.8B | 1.7% | 4.8% | 0.35% | ETF | Yes |
| JEPI | JPMorgan Equity Premium Income ETF | $40.2B | -2% | 8.9% | 0.35% | ETF | Yes |
| DFUV | Dimensional US Marketwide Value ETF | $11.6B | -4% | 1.7% | 0.21% | ETF | Yes |
| JEPQ | JPMorgan Nasdaq Equity Premium Income ETF | $23.4B | -6.1% | 12.7% | 0.35% | ETF | Yes |
| DFAC | Dimensional U.S. Core Equity 2 ETF | $33.1B | -7% | 1.0% | 0.17% | ETF | Yes |
| DFAT | Dimensional U.S. Targeted Value ETF | $10.6B | -11.6% | 1.3% | 0.28% | ETF | Yes |
| AVUV | Avantis U.S. Small-Cap Value ETF | $15.5B | -14% | 1.6% | 0.25% | ETF | Yes |
All in all, Fidelity’s survey shows active ETFs are quickly becoming part of the conversation regarding portfolio construction. Advisors are now starting to use them as real building blocks within their asset allocation plans for customers. That includes both the equity and fixed income sides. With plenty of benefits, it’s easy to see why. Going forward, we’re likely to see more advisors use them as a place to find additional alpha and enhance portfolios far into the future.
The Bottom Line
Active ETFs have grown from a fad product to a full-blown asset allocation tool. Financial advisors have finally gotten in on the act. Fidelity’s survey underscores their growth and prominence as a major component of portfolio construction these days.
1 Fidelity (February 2025). Investment Portfolio Insights
