One of the core themes in public markets over the past decade has been the emergence of active exchange-traded funds, or ETFs. From less than $50 billion of assets under management in 2015, active ETFs have grown to roughly $2 trillion by year-end 2025. This compares to approximately $20 trillion for the broader ETF asset class.
A Structure That Works for Today’s Investor
The appeal of active ETFs is that they combine the benefits of active management with the advantages of the ETF structure. Relative to mutual funds, ETFs offer tax efficiency, lower total cost of ownership, enhanced liquidity, and greater transparency. Tax efficiency is particularly important given the embedded capital gains that many active mutual funds carry today.
Not All Active ETFs Are Built the Same
Broadly speaking, active ETFs tend to fall under two categories:
Discretionary Strategies
Discretionary management involves fundamental analysis of underlying securities to arrive at a more concentrated subset that the manager believes will outperform the benchmark. Security selection is based on independent research across sectors, industries, and individual companies with a high degree of human judgment.
Systematic Strategies
Systematic investing, by contrast, is more quantitative and mechanical in nature. These strategies use models of security returns and typically involve less human discretion. They often emphasize risk factors that may have historically contributed to outperformance, such as size, style, and momentum (in equity investing).
Why This Matters for Your Portfolio
Investing is not a one-size-fits-all exercise, and at Carlson Investments, we recognize that different investment styles may be better suited to different market environments.
In today’s market backdrop, we remain confident in the role of active management within investor portfolios and are encouraged by the expanding set of opportunities across the active ETF landscape.
A Growing Opportunity Set
While more investor choice is a good thing, it can also add more complexity.
The opportunity is not just in accessing these strategies, but in knowing how they fit into your overall plan…and you really should have a plan! That requires a disciplined framework, a long-term perspective, and a willingness to adapt as markets change.
If you are evaluating how active ETFs or other strategies may play a role in your portfolio, our team is here to help you think through it. You can start the conversation here.
Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation.
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