The rise of Active ETFs – will these new products continue to find approval with investors in the US in 2025 and/or be as pervasive in Europe?
Dr Raymond Backreedy, Chief Investment Officer, Sparrows Capital
Active ETFs are likely to gain further traction, particularly in the US, though we believe this trend is largely driven by marketing rather than proven long-term performance.
However, evidence continues to highlight the challenges active strategies face in consistently outperforming passive approaches over the long term. In Europe, where cost sensitivity is often a priority, investors may approach this trend with more caution. This makes education key to demonstrating the value of a strategic, evidence-based, passive approach.
Irene Bauer, Co-Founder, Algo-Chain
There has been considerable growth in the use of active ETFs in the US. The challenge now is for product providers to sell their funds and to show that their magic ingredients are better than their competitors’. This will be as hard as it is for the hedge fund industry.
I am sometimes puzzled how little information is given for a certain product. And then surprised that there is any money in those funds if one doesn’t know enough about the investment approach.
David Daly, Investment Manager, New Horizon
An ETF structure around a successful active strategy in a suitably priced, liquid product is obviously an attractive offering for retail and non-retail investors alike. Younger investors are particularly disposed towards buying into an ETF structure, hence the expansion of retail ownership. Globally, assets invested in active ETFs have risen from $200m in 2020 to around $1tn and are forecast, by BlackRock to quadruple from here by 2030. In Europe penetration remains in the low single digits but we are certainly seeing increased interest and most new launches being presented to us now seem to be for active products – particularly in the fixed income space. Of course, the backdrop in Europe is very different and taxation benefits less clearcut, so it may be some time before active ETFs are as pervasive in Europe.
Is ESG still a significant trend in 2025?
Henry Timmons, Director of ETFs, Richard Bernstein Advisors
In Europe, having clear classifications (Article 8 and 9) delineate ESG investments from others has encouraged ESG adoption while in the US, ESG has become a hot button topic. I doubt ESG hype will return in the US.
However, I am optimistic aspects of ESG will continue growing in a more segmented fashion, as opposed to under the all-encompassing label of ESG.
David Daly, Investment Manager, New Horizon
For all Trump’s scepticism, it is unlikely that ESG considerations will diminish in importance to end-investors with nearly 80 per cent of Millennial and Gen Z investors expressing an interest in sustainable investing practices. However, there are clear challenges to ensure confidence in ESG investing is maintained as data quality, perception of greenwashing and performance drag in some cases have all having created barriers in recent years. Investors are clear that, while keen to embrace ESG principles, they do not wish to see large variation from reference non-ESG indices. Regulatory frameworks such as the EU’s Sustainable Finance Disclosure Regulation (SFDR) are increasing in importance and concerns around greenwashing make transparency on ESG metrics essential. Issuers of ETFs are providing more precise and validated ESG reports which should ensure ESG investing can maintain the double-digit annual growth of the past five years.
Irene Bauer, Co-Founder, Algo-Chain
I would say it will only be certain aspects of ESG that will keep trending, not the E, S and G together. For example, the use of climate change and Paris-aligned and climate transition benchmarks is still growing. Although it will be a bit on the backburner in the US for a while as money spent by the government on climate transition will probably be reduced.
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