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CONTRIBUTORS

David Mann

Head of Global Exchange-Traded Funds Product and Capital Markets, Franklin Templeton

The “active” in active ETFs simply means there is not an underlying index. This somewhat obvious statement, made last February in my predictions column, was intended to dispel the misconception that active somehow means more risk or more tracking error, which certainly is not the case. In my predictions, I was optimistic that investors would appreciate that nuance and continue to seek active managers to get specific outcomes.

Here is a recap of my 2025 predictions:

  • Active ETF assets under management (AUM) will hit $1.5 trillion in the United States this year.

Wow! I nailed this one. As of December 18, active ETF AUM sits at $1.49 trillion.1 With a few more days left in the year, I might hit this one on the head.

  • There will more active ETFs than index ETFs in the United States.

Bingo on this one as well. Although I did not expect that out of the 1,011 ETF launches in the United States in 2025, 870 (86%) would be active. Astonishing! The number of active ETFs is now more than 500 ahead of index ETFs—2,682 to 2,174.2

  • Active fixed income ETFs will reach 50% of all active net inflows.

I was a little too bullish about the increased adoption of active fixed income ETFs. Currently, year-to-date net inflows into all active ETFs sits at around $460 billion, representing 31% of all inflow activity. Fixed income is almost exactly 33% of those active inflows.3

As I was parsing through all the ETF AUM and flow data for 2025 to find any unexpected or surprising trends, it dawned on me that whatever point I wanted to make could be found somewhere in the data. That is what happens when investors are on pace to add over $1.5 trillion of new money into US-listed ETFs, besting last year’s record by over $300 billion.4 US ETF AUM is now almost $13.5 trillion!5

Almost $500 billion into active strategies means there is $1 trillion into index funds. Smart beta might be out of favor but will likely still end up with almost $100 billion of net inflows for the year.6 Heck, when I look at the top four asset gatherers at Franklin Templeton this year, the first is active equity, the second is smart beta, the third is passive market-cap index and the fourth is active fixed income. Many investors apparently love ETFs, and there really is something for everyone. That is not going to change anytime soon, in my opinion.

Nearly a decade ago when I began writing, my intent was to identify misconceptions within the ETF arena in case investors were hesitant to choose an ETF because its AUM was too small, its spreads too wide or its trading volume too low. We occasionally continue to have those conversations but certainly not to the degree that we did in 2015 when US net inflows for the year were at $240 billion and industry AUM was $2.1T.7

That means this column will continue to evolve in 2026. I am debating fewer written articles, while potentially adding videos and/or podcasts. Rest assured that as the ETF industry continues to grow and evolve, I will be here to comment accordingly!

I hope everyone has a wonderful new year and that I’ll see you in 2026!

Endnotes

  1. Source: Bloomberg. As of December 18, 2025.
  2. Ibid.
  3. Ibid.
  4. Ibid.
  5. Ibid.
  6. Source: Morningstar. As of December 18, 2025.
  7. Source: Bloomberg. As of December 18, 2025.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Performance of a passive portfolio may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors.

ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.

For actively managed ETFs, there is no guarantee that the manager’s investment decisions will produce the desired results.

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