Broadridge has published new research on the active ETF boom: ‘Tracking Error is a feature, not a bug,’ which reveals the transatlantic market is splitting in two, with US products charging significantly higher fees for measurably more active strategies, raising questions about whether ‘active’ means the same thing on both sides of the Atlantic.
The firm writes that despite rapid global growth (active ETFs now approaching USD1.8 trillion with 50 per cent+ annual asset growth), US and European products are diverging sharply in strategy, pricing and transparency.
Broadridge’s analysis uses tracking error, the deviation from benchmark, to decode what funds are actually doing beyond marketing claims.
Key findings include:
US active ETFs are demonstrably ‘more active’ – and charge accordingly: US-domiciled products show tracking error 2 per cent higher than European equivalents, with fees averaging 70-90 basis points versus Europe’s 20-40 basis points across major categories.
Different markets want different products: Europe concentrates on lower-cost systematic strategies (rules-based, algorithm-driven), whilst the US market skews heavily toward traditional fundamental active management with concentrated portfolios and higher conviction bets.
Market structure is driving the split: Tax advantages specific to US ETFs, European UCITS regulations, and vastly different transparency requirements (98 per cent of US active ETFs don’t disclose daily holdings under exemptive relief) are creating distinct ecosystems that happen to share the ‘active ETF’ label.
Fund companies launching products across borders can’t simply replicate strategies, what works in asset accumulation in the US may struggle in European UCITS wrappers, and vice versa. For investors, ‘active management’ increasingly means different things depending on domicile.
