The Growth of Active ETFs

The most reliable way to see where fund distribution is heading is to compare two numbers. Actively managed ETFs held about $1.47 trillion at the end of 2025 — roughly 11 percent of the $13.5 trillion in US ETF assets. But they captured about $459 billion of 2025's record ETF inflows, a 31 percent share, according to Morningstar. Money is arriving at roughly three times the rate the existing asset base would suggest, and in the first half of 2026 the flow share climbed toward 39 percent. Globally, active ETF assets reached a record $2.59 trillion by July 2026, per ETFGI.

The product pipeline has already tipped. Of a record 1,132 US ETF launches in 2025, roughly 85 percent were active — and, for the first time, more active ETFs than passive ones are listed in the US. Sixty mutual funds converted into ETFs during the year, taking cumulative conversions past 200 and more than $260 billion of assets. In November 2025 the SEC granted Dimensional the first exemptive relief allowing ETF share classes of mutual funds — the structure Vanguard once patented — and some ninety firms have since received similar approval, though few have launched, a rollout worth watching more than the headlines.

The drivers are structural rather than cyclical. On an asset-weighted basis active ETFs cost 0.40 percent against 0.58 percent for active mutual funds, per ICI data. The tax difference is starker: in 2025 only about 7 percent of ETFs distributed capital gains, versus roughly half of mutual funds. And distribution has industrialized — model portfolios ran about $9.3 trillion at year-end 2025, per Broadridge, with ETFs taking a rising share of the allocations advisors deploy at scale.

Meanwhile long-term mutual funds bled roughly $551 billion in the first eleven months of 2025 while ETFs absorbed $1.24 trillion. The transaction is best read as one flow, not two: the same strategies, and often the same managers, migrating to a cheaper, more tax-efficient wrapper. The fund industry is not shrinking. It is changing clothes.

Data notes: Flow and AUM tallies vary modestly by provider ($459B–$475B for 2025 active inflows; $1.46T–$1.49T total ETF inflows) depending on fund classification; cite one provider per figure. Mutual fund outflow figure covers January–November 2025.