Active exchange-traded funds (ETFs) have experienced unprecedented inflows in the first three quarters of 2025, amassing $338 billion—significantly surpassing the total raised in 2021, 2022, and 2023 combined.
The momentum for active ETFs is clearly growing. Factors like approvals from the Securities and Exchange Commission and the introduction of new funds are major contributors to this trend. It’s interesting to see which asset managers are really taking advantage of this rising popularity.
The number of active ETFs surpasses passive ETFs for the first time.
A recent launch of an active ETF has sparked record inflows within this sector. By June 2025, active ETFs are expected to outnumber passive ones, capturing a larger slice of the inflows. The shift is partly due to regulatory changes from the SEC, which have simplified the processes for launching and managing these funds. Active equity ETFs remain the frontrunners for new launches, closely followed by bond ETFs.
The introduction of ETFs as a share class is also likely to bolster the market share of active ETFs. This change allows investors to convert mutual fund shares into ETFs without facing capital gains taxes or distributions. Generally, ETFs are viewed favorably for their lower fees, higher tax efficiency, and ability to help investors retain more earnings.
It’s all derivative
In the third quarter, State Street introduced 14 active ETFs, leading the pack. They launched an 11-variant derivative income edition of the Select Sector SPDR ETF, which tracks various U.S. market sectors. These ETFs invest in comparable ETFs, then sell call options to generate additional income, albeit with reduced upside potential. While they cover downside risks, investors should carefully weigh the trade-offs involved.
There’s a growing demand for derivatives income funds this year, with the category seeing substantial inflows. As of September, there have been 72 new listings, lifting the assets in these ETFs from under $1 billion at the end of 2020 to $127 billion.
Model provider
JPMorgan has led the way in inflows to active ETFs from the start of 2025 through September. Their JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) and JPMorgan Equity Premium Income ETF (JEPI) are among the top 20 by inflows. These funds, both old players in the derivatives income category, now account for over half of the assets in that sector, contributing greatly to JPMorgan’s overall ETF inflow this year.
iShares also features prominently with several ETFs among the top flows in 2025. ETFs like iShares U.S. Equity Factor Rotation Active ETF (DYNF) and others are part of BlackRock’s strategic model, which has seen increased capital allocation reflected in rising inflows. Overall, BlackRock is currently third in active ETF flows for the year.
First Trust has dominated the market for active ETF launches this year, with 14 of the 24 newly introduced ETFs being best-subadvised defined outcome ETFs. These products incorporate options that limit potential losses but also cap gains, appealing to risk-averse investors and steadily attracting inflows since 2021.
Bond, ultra-short bond
This year has witnessed a noticeable rise in ultra-short bonds, particularly favored during a volatile first nine months. The Janus Henderson AAA CLO ETF (JAAAA) has driven significant inflows in this category, accounting for more than 25% of total inflows and generating $9 billion in new assets. JAAAA invests in a diverse pool of actively managed, non-investment grade bank loans—riskier than alternatives like the iShares 0-3 Month Treasury Bond ETF—but offering higher yields that have caught investors’ attention.
ETF Royal
The previous discussion largely overlooked ETFs tailored for long-term investments and excluded the rapidly growing category of trading tools. The number of these trading tool ETFs more than doubled in the early months of 2025, largely in the Morningstar leveraged equities category. Most new entries are single-stock ETFs aiming to mimic leveraged performance of individual stocks or even cryptocurrencies.
However, the leveraged equity ETFs carry a concerning history. Over 40% of those created before 2024 have shut down, and around 15% have lost more than 70% of their value throughout their lifetime. The SEC has even issued warnings about potential pitfalls with individual stock ETFs since their introduction in 2022.
While leverage for single-stock ETFs is currently capped at 2x, some fund managers are seeking to introduce ETFs with up to 5x leverage on single stocks. To clarify, a 20% drop in stock price could mean significant losses for these funds, making them high-risk options targeted toward short-term traders rather than traditional long-term investors.
