Active ETF Boom Sees Record Launches Amid High Attrition, Yet Issuers Press On
The explosive growth of actively managed exchange-traded funds shows no sign of abating, even against a backdrop of rising closures. Last year marked a pivotal moment, with issuers launching a staggering 995 new active ETFs—shattering the previous record—according to Morningstar data. This surge, however, was paired with a record 146 active ETF closures, highlighting the competitive and often unforgiving nature of the strategy.
"We're in a phase of aggressive experimentation and market capture," said Stephen Welch, a senior analyst at Morningstar. "For many traditional asset managers, the active ETF is a crucial new vehicle, and they are being rewarded with significant inflows." Indeed, active ETFs accounted for approximately one-third of all new money invested in the ETF universe last year, drawing roughly $475 billion. Concentration is high, with about half of those flows funneling to just six major firms: JPMorgan, Capital Group, Dimensional, iShares, American Century, and Fidelity.
The momentum signals a broader shift in advisor sentiment. "The flows are gaining steam, which suggests financial advisors are growing more comfortable with the structure and more willing to allocate client assets," Welch noted in an interview.
The 'Spaghetti' Strategy and Its Costs
The lifecycle of some funds has been remarkably short. Products like the 2x Daily Software Platform ETF (SOFL) and the Azoria 500 Meritocracy ETF (SPXM) folded within months of launch. Welch describes this as a "spaghetti-on-the-wall" approach—issuers, particularly those targeting volatile day-trading niches, launch numerous ideas to see what gains traction. "This tactic isn't typical for the large, traditional houses, and I expect we'll see it slow. Launching these funds isn't free, and failures are costly," he added.
Despite the higher attrition rate compared to passive index funds, the strategic calculus for asset managers remains clear. The potential for fee income and market share in a high-growth segment continues to outweigh the risks of individual product failure. The question is no longer if active ETFs will persist, but how the landscape will consolidate as the initial frenzy matures.
Reader Perspectives:
Michael R., Portfolio Manager, Chicago: "This data confirms the land-grab mentality. Firms are building shelf space. The closures are just the cost of doing business—you incubate ten funds hoping one becomes a billion-dollar winner."
Susan Lee, Financial Advisor, Boston: "The concentration of flows is telling. Clients are seeking active exposure, but they, and we advisors, are gravitating toward established brands with robust research. It's a vote for quality over quantity."
David K. (Online Comment): "Absolute madness. Nearly 150 ETFs died in a year? That's a monument to waste and hype. They're just churning out products to collect fees on unsuspecting investors' money before the plug is pulled. The whole 'active' promise is mostly a mirage."
Priya Chen, ETF Analyst, Research Firm: "We're witnessing the natural evolution of a hot market. The launch wave was about entry and visibility. The next phase will be dominated by product refinement and profitability pressure, which will separate the serious players from the tourists."