ETF Market Sees Surge in Active Funds Amid Regulatory Scrutiny

ETF Market Sees Surge in Active Funds Amid Regulatory Scrutiny

The exchange-traded fund (ETF) market is experiencing significant developments, with a notable rise in active ETFs and increased regulatory attention on fund management practices.

Rise of Active ETFs

Active ETFs, which combine the benefits of traditional ETFs with active management strategies, are gaining popularity among investors seeking dynamic investment approaches. In 2024, active ETFs attracted $295 billion in inflows, capturing an 8.6% market share. This trend reflects a growing appetite for funds that offer the potential for outperformance while maintaining the liquidity and cost advantages of ETFs. Source

Regulatory Scrutiny on ‘Shy Active’ Practices

Despite the growth of active ETFs, some investment managers face criticism for promoting funds as actively managed while closely mirroring benchmark indices—a practice termed “shy active.” A survey by Carne Group revealed that 88% of wealth managers and institutional investors believe these ETFs fail to meet their active management claims. Transparency concerns, especially due to European regulations mandating daily portfolio disclosures, have impeded the launch of genuinely active ETFs. However, new semi-transparent structures introduced in Luxembourg and Ireland are expected to encourage truly active fund strategies by protecting trade confidentiality. Source

Global Expansion and Innovation

Major asset managers are expanding their ETF offerings to capitalize on emerging market trends. For instance, BlackRock and BNP Paribas have launched new ETFs focused on Europe’s defense industry, aiming to benefit from increased defense spending by European governments. Over the past seven months, at least nine Europe-focused defense ETFs have been introduced, reflecting a strategic response to geopolitical developments. Source

Market Performance

As of May 31, 2025, key ETFs have shown the following performance:

• SPDR S&P 500 ETF Trust (SPY): $589.39, down 0.078% from the previous close.
• Vanguard S&P 500 ETF (VOO): $541.76, down 0.046% from the previous close.
• Invesco QQQ Trust Series 1 (QQQ): $519.11, down 0.112% from the previous close.
• iShares Russell 2000 ETF (IWM): $205.07, down 0.495% from the previous close.
• iShares MSCI Emerging Markets ETF (EEM): $45.52, down 1.27% from the previous close.

These figures indicate a slight downturn in major ETFs, reflecting broader market trends and investor sentiment.

Conclusion

The ETF market continues to evolve, with active ETFs gaining traction and regulatory bodies scrutinizing fund management practices. Investors should stay informed about these developments to make well-informed investment decisions.