ETF Market Update: Active Management Trends and Global Developments

Active ETFs Under Scrutiny for ‘Shy Active’ Practices

Recent analyses have raised concerns about certain investment managers promoting exchange-traded funds (ETFs) as actively managed while closely mirroring benchmark indices. This practice, termed “shy active” by Morningstar, suggests that some funds engage in minimal deviations rather than employing traditional stock-picking strategies. 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 issues, 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. Experts emphasize the importance of transparency and investor awareness about what such ETFs truly offer. Despite claims of misleading practices, some argue for the utility of low tracking error funds, provided their strategies and performance metrics are clearly disclosed. The active ETF market remains nascent in Europe, but anticipated regulatory changes may lead to more authentic offerings in the near future. Investment managers accused of misleading market over ‘active’ ETFs

Global Investors Launch European Defense ETFs Amid Rising Geopolitical Tensions

In response to escalating geopolitical tensions and increased defense spending by European governments, major global asset managers such as BlackRock and BNP Paribas have launched new ETFs focused on Europe’s defense industry. These funds aim to capitalize on the continent’s rearmament efforts, spurred in part by calls for Europe to become less reliant on American military support. Over the past seven months, at least nine Europe-focused defense ETFs have been introduced, a recent trend in a market that already offers more than 50 defense ETFs globally. So far in 2025, investors have injected $8.4 billion into defense ETFs, with $2.7 billion directed toward the European-focused variants, more than double the total investment for all of 2024. BlackRock’s new ETF was listed in Amsterdam and Frankfurt, while BNP Paribas’ ETF is already listed in Paris and will soon be listed elsewhere in Europe. These funds typically include companies within European NATO member states. The surge in defense stock values has encouraged more money managers to enter this space, including firms like Allianz and UBS, which have relaxed previous restrictions on defense investments. Global investors launch Europe defense funds to profit from rearmament

China Considers Opening Its $520 Billion ETF Market to Western Market Makers

China is considering granting access to Western firms like Citadel Securities, Jane Street, and possibly Optiver to operate as market makers in its $520 billion ETF market. This move could enhance trading efficiency and reduce costs due to the experience international firms bring in providing ETF liquidity. Over the past two years, China has expanded its ETF sector significantly, growing 134% to become Asia Pacific’s second-largest behind Japan. Despite the growth, ongoing U.S.-China trade tensions, including recent U.S. tariffs of 145% on Chinese goods, may delay approval for U.S. firms. Market makers offer continuous buying and selling prices for ETF shares, enabling smooth trading, and licensed market makers in China benefit from reduced fees and trading restrictions. Citadel has already applied to establish a brokerage unit in China, though none of the firms or China’s securities regulator has publicly commented. While China has opened more of its financial sector to foreign firms in recent years, geopolitical tensions and economic slowdown have led firms like Fidelity, Morgan Stanley, and Legal & General to scale back their operations in the country. China has considered opening its $520 billion ETF market to Western market makers, sources say

Capital Group Enters Active ETF Model Portfolio Market

Capital Group, the largest active asset manager globally, is entering the active ETF model portfolio market with eight model portfolios made entirely of its own active ETFs. This move aligns with a growing trend where financial advisers prefer pre-constructed model portfolios to streamline their investment processes. These portfolios, which match specific risk levels or investment goals, are increasingly popular in the US. Capital Group’s new offerings leverage their 22 ETFs, which have garnered $53bn in assets. By utilizing ETFs, advisers benefit from lower fees and increased tax efficiency compared to mutual funds. The model portfolio market, valued at $2tn in the US, is traditionally dominated by broker-dealers but is seeing a shift towards asset manager and third-party operated portfolios. The launch of Capital’s all-active ETF portfolios is seen as a response to the evolving financial advice ecosystem, where advisers focus more on comprehensive financial planning and outsource investment management. Additionally, many US asset managers plan to introduce actively managed ETFs in the near future, further enhancing the availability of model portfolios. Capital Group wades into active ETF model portfolio market

ETF Market Faces Potential Challenges After Record Inflows

In 2024, U.S. ETFs experienced record inflows of $1.1 trillion, nearly doubling the $597 billion from the previous year. Analysts attribute this growth to a bullish market, innovative products in cryptocurrencies and options, and investors’ preference for low-cost, highly liquid ETFs. However, in 2025, the industry could face challenges such as market saturation and the difficulty of attracting investors to complex products. A record number of ETF closures is expected, surpassing the 186 liquidations in 2024. Despite these challenges, the sector remains optimistic, reaching $14 trillion in global assets by the end of 2024, with a significant increase in new ETF launches, including products based on bitcoin and risk management strategies. ETFs could face obstacles in 2025 after bumper year

Vanguard Leads U.S. ETF Flows in 2024

Vanguard triumphed over iShares in the U.S. ETF flows competition for the fifth consecutive year in 2024, driven largely by its U.S. equity market trackers. Vanguard’s ETFs received a net inflow of $308.2 billion, including $117 billion for its Vanguard S&P 500 ETF (VOO). iShares attracted $292.5 billion, led by its Core S&P 500 (IVV) with $86.5 billion and its Bitcoin Trust with $37.5 billion. Vanguard’s U.S. equity products made up two-thirds of its new cash, while iShares saw more diversified inflows. Industry-wide, ETFs garnered $1.1 trillion in 2024 inflows, surpassing the 2021 record of $901 billion, with equity funds leading the charge at $773.2 billion. Active ETFs saw $295 billion in inflows, capturing a larger market share of 8.6 percent. Vanguard wins US 2024 ETF flows crown

Market Performance of Leading ETFs

As of May 31, 2025, several leading 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 reflect the dynamic nature of the ETF market and the importance of staying informed about market trends and developments.