ETF Market Update: Active Management Trends and Global Developments

Active ETFs Under Scrutiny for Transparency

Recent analyses have raised concerns about the transparency of actively managed exchange-traded funds (ETFs). A significant number of these funds are being criticized for closely mirroring benchmark indices while promoting themselves as actively managed. This practice, termed “shy active” by Morningstar, suggests minimal deviations from indices 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

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 defence funds to profit from rearmament

China Considers Opening ETF Market to Western Firms

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

Investor Savings Through ETFs

US investors have saved $250 billion by investing in ETFs instead of traditional mutual funds since 1993, according to Bank of America (BofA). These savings, equivalent to 2.5% of the $10 trillion US-listed ETF market, come primarily from tax advantages rather than just lower fees. The average expense ratio for US ETFs is 0.16% compared to 0.44% for mutual funds, but the significant tax savings are what truly benefit ETF investors. ETFs incur lower “tax drag” due to their structure, minimizing capital gains liabilities. Unlike mutual funds that need to sell underlying assets to handle redemptions—incurring capital gains taxes—ETFs can transfer stock “in-kind” to market makers, avoiding such taxes. Consequently, while ETF investors may pay somewhat higher taxes upon selling their holdings, these tend to be long-term gains taxed at lower rates. The ongoing shift from mutual funds to ETFs has seen investors withdrawing over $2 trillion from mutual funds and investing a similar amount in ETFs over the past decade, enhancing future cost savings for investors. US investors have saved $250bn by investing in ETFs, says BofA

Vanguard Leads US ETF Flows

Vanguard triumphed over iShares in the US ETF flows competition for the fifth consecutive year in 2024, driven largely by its US 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 US 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 Key ETFs

As of June 2, 2025, several major ETFs have shown notable performance:

• SPDR S&P 500 ETF Trust (SPY): Trading at $591.55, up 0.37% from the previous close.
• Invesco QQQ Trust Series 1 (QQQ): Trading at $522.54, up 0.66% from the previous close.
• iShares Russell 2000 ETF (IWM): Trading at $205.42, up 0.17% from the previous close.
• SPDR Dow Jones Industrial Average ETF (DIA): Trading at $422.80, slightly down by 0.01% from the previous close.
• iShares MSCI Emerging Markets ETF (EEM): Trading at $45.78, up 0.57% from the previous close.
• iShares MSCI EAFE ETF (EFA): Trading at $89.56, up 0.84% from the previous close.
• SPDR Gold Shares ETF (GLD): Trading at $311.20, up 2.50% from the previous close.
• iShares Silver Trust (SLV): Trading at $31.49, up 4.97% from the previous close.
• United States Oil Fund (USO): Trading at $69.33, up 3.24% from the previous close.
• iShares 20+ Year Treasury Bond ETF (TLT): Trading at $84.84, down 1.68% from the previous close.

These movements reflect the dynamic nature of the ETF market, influenced by various economic indicators and investor sentiments.