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Unpacking Active ETFs
Jan 22, 2025
We present a transparent, risk-based framework for asset allocators, including wealth managers, to use in evaluating the active-ETF market, an emerging yet rapidly expanding market segment, particularly in the U.S., where growth has been driven by the conversion of mutual funds into active ETFs. Our framework can help distinguish genuinely active strategies from enhanced indexing.
We focused on active equity ETFs with a U.S. geographical focus. Currently, the market shows a polarized distribution, with an ETF either highly concentrated or broadly diversified.
Active ETFs can be strategically integrated with market-beta and indexed strategies to potentially improve portfolio outcomes while managing specific risks, offering valuable insights for asset allocators navigating this growing market.
Republished with permission from the Journal of Beta Investment Strategies, from: Ashish Lodh and Rohit Gupta. 2024. “Unpacking Active ETFs: Increasing Transparency through a Risk- and Exposure-Based Framework.” Journal of Beta Investment Strategies 15, no. 4 (winter 2024).
Active ETFs varied in their level of diversification and AUM
Data as of May 31, 2024. Bubble size represents the ETF’s AUM. The sample consisted of 301 active equity ETFs with a U.S. geographical focus, including 25 converted from a mutual fund. Source: Lipper, Morningstar
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Research authors
- Ashish Lodh, Executive Director, MSCI Research
- Rohit Gupta, Vice President, MSCI Research
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