Active ETF Growth Narrows Gap With Passive

Active ETFs have rapidly closed the gap with passive products, with the number of active exchange-traded funds climbing to 1,531 as of year-end 2024 compared to 1,907 passive funds, according to new data from the Securities and Exchange Commission.

The shift marks a turning point for the ETF industry, which has traditionally been dominated by passive index-tracking products. While active ETFs still represent just 9% of total ETF assets, their growth rate has far outpaced passive competitors, according to the February SEC report analyzing regulatory filings the agency received in 2025.

The active segment saw assets under management jump 65% annually between 2020 and 2024, compared to 19% growth for passive products, according to the SEC’s Division of Economic and Risk Analysis.

The SEC report provides a regulatory look at how active ETFs differ from their passive counterparts in portfolio management, market structure, and investor adoption, showing that these funds are being used for strategies that aim to beat the market rather than simply track an index.

Active ETFs grew more than 300% from 2020 to 2024, expanding from 412 funds to 1,531, according to the report. Passive ETFs increased just 15% during the same period, rising from 1,661 to 1,907 funds. As a result, active products now make up 45% of all ETFs, up from 20% in 2020.

The growth comes despite higher operating expenses for active management, per the SEC. Asset-weighted average expense ratios for active ETFs stood at 0.49% in 2024, compared to 0.12% for passive products. Average monthly inflows reached 5.1% for active ETFs versus 1.3% for passive funds between 2020 and 2024, according to the report.

Active ETF Market Shows Different Structure

The active ETF market is less concentrated than passive products, per the SEC. The top four fund families control 87% of passive ETF assets but just 58% of active ETF assets. Dimensional, JPMorgan Chase & Co., and First Trust lead the active space, while BlackRock, Inc., Vanguard, State Street Corp., and Charles Schwab Corp. dominate passive products.

The report found that active ETFs show lower alignment with benchmark returns, averaging 70% to 80% compared to nearly 100% for passive funds. This indicates that active managers are making investment decisions that deviate from their benchmarks rather than closely tracking an index.

Portfolio turnover rates also reflect more frequent trading activity, according to the report. Active ETFs recorded a median annual turnover of 35% in 2024, meaning these funds replaced roughly a third of their holdings over the year. That’s down from 49.5% in 2020 but still higher than passive funds’ 28% median turnover rate.

Active products show greater use of derivatives for risk management and return enhancement, according to the report. Roughly 40% of active ETFs use derivatives, with higher adoption of commodity, credit, and interest rate derivatives compared to passive funds. Active ETFs also hold fewer securities on average, approximately 200 holdings versus 400 for passive products, reflecting more concentrated portfolio strategies.

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