Actively Managed ETFs Gain Traction as Investors Navigate Volatility

Active ETF Growth Surges Past $1.3 Trillion as Investors Seek Flexibility

As of May 2025, actively managed exchange-traded funds (ETFs) are witnessing unprecedented growth, with global assets surging past $1.3 trillion. This sharp rise, including $32.2 billion in net inflows during April alone, highlights a significant pivot among investors towards active strategies in uncertain market conditions. The year-to-date inflows now total a record-setting $176.75 billion.

This migration from traditional mutual funds to ETFs is largely driven by their lower costs, enhanced liquidity, and better tax efficiency. Between 2021 and 2023, 460 new active ETFs entered the market, while 260 mutual funds closed, according to Deloitte. Investors now seek products that can dynamically respond to evolving risks and opportunities, rather than passively track benchmarks.

Notably, emerging fund providers are leveraging this trend, with custom-tailored offerings addressing specific market sectors or themes such as ESG, artificial intelligence, and emerging market decoupling.

Geopolitical Risk and Innovation Drive Strategic ETF Flows

Recent geopolitical tensions, particularly the U.S. decision to tighten AI chip export restrictions to China, have jolted equity markets. Major indices saw sharp losses on May 21 — the Dow fell 1.9%, the S&P 500 dipped 1.6%, and the Nasdaq dropped 1.4%, according to Investors.com. This volatility has fueled interest in active ETFs that can rapidly reallocate exposure and hedge risks.

Meanwhile, investors are finding value beyond traditional benchmarks. The iShares MSCI Emerging Markets ex China ETF has posted an impressive 8% year-to-date gain, outperforming the S&P 500’s modest 0.6%. A weakening U.S. dollar and a rebound in emerging economies are contributing to this shift in capital allocation, as noted by MarketWatch.

Simultaneously, AI-driven innovation is reshaping the ETF landscape. Platforms like Public’s Generated Assets now allow investors to create hyper-personalized ETF-like portfolios. This disrupts traditional ETF structures and could herald a future where algorithmically tailored funds outperform legacy products, as highlighted in Axios.

Looking ahead, projections suggest ETFs will continue expanding across geographies and sectors. In Australia alone, State Street Global Advisors expects the ETF market to exceed AU$300 billion, with active strategies making up more than half of new listings.

As investors face market turbulence, AI transformation, and geopolitical realignment, active ETFs stand out as flexible tools for balancing risk and opportunity. With the market evolving rapidly, strategic positioning within the ETF space could define portfolio performance for years to come.