‘Core & Explore’ Is Driving the Shift to an All-ETF Portfolio

The all-ETF portfolio is becoming a reality, as product offerings have evolved to create a comprehensive tool kit for total portfolio construction. 

Interest in ETFs is currently at an all-time high, as ETFs are on pace to take in a record $1.3 trillion in 2025. And the shift to an-all ETF portfolio is accelerating, according to Schwab Asset Management’s 2025 “ETFs and Beyond” study. 

The survey found that nearly two-thirds (62%) of ETF investors can now envision their entire investment portfolio in ETFs. More strikingly, half (50%) say this could become a reality for them within the next five years.

For financial advisors, this signals a critical juncture. The question is no longer if clients will adopt ETFs, but how they are using them to build sophisticated strategies. The answer lies in the growing adoption of the “core and explore” model, where investors are adding both passive and active core allocations as well as tactical satellite positions in ETFs. Investors no longer feel compelled to look outside the ETF structure to find opportunities for potential alpha.

Plans for ETF Adoption

Looking ahead to 2026, adoption plans are nearly identical for both major categories. Sixty-six percent of investors plan to add index ETFs, while 65% plan to add active ETFs. This parity in future demand underscores that the active ETF segment has moved mainstream.

The “explore” component is driving significant interest in actively managed ETFs. While cost remains the top factor for selecting any ETF (cited by 59% of investors), the reasons for choosing active ETFs are distinct. The study found that 63% of investors would consider an active ETF for its potential to outperform a traditional benchmark, and 51% would use them to access alternative strategies not typically available through index products.

Notably, individual stocks (62%) and mutual funds (52%) are the primary sources of money for new ETF investments. The top asset classes that investors are planning to invest in over the next year via ETFs include U.S. equities (52%), bonds/fixed income (45%), and cryptocurrencies (45%).

Moving from individual bonds (40%) is the third-largest source of money for new ETF investments. That supports the strong flows into fixed income ETFs. According to the study, 40% of ETF investors plan to increase their fixed income allocations. Furthermore, more ETF investors want to be in fixed income now compared to 2024 because they anticipate being in a high-interest rate environment for the foreseeable future (48%, up from 37% in 2024).

Active & Passive Management Have Distinct Uses in an All-ETF Portfolio

The study revealed where investors prefer indexed strategies versus actively managed ones. At a high level, in highly efficient markets, the preference for traditional indexing remains strong. 

For U.S. equities, 42% of investors prefer index ETFs compared to 33% favoring active. A similar split exists in international developed markets (38% index versus 30% active) and fixed income (40% index versus 32% active).

However, the data shows a clear shift when investors move toward less efficient or more specialized asset classes.

In emerging markets, investors favored active management (39%) over indexing (35%), likely seeking managers who can navigate the inherent volatility and idiosyncrasies of developing economies.

Active ETFs (35%) beat out index ETFs (32%) in the alternatives asset class. These strategies often require complex execution that simple indexing may not be able to replicate.

The real assets category is split, with preferences evenly at 36% for index and active ETFs.

This nuanced usage shows that investors are discerning regarding where paying for active management makes sense within an ETF wrapper.

Implications for Advisors

The Schwab data highlights an opportunity for advisors to creatively use ETFs to create an all-ETF portfolio. The tool kit for building institutional-grade, fully diversified portfolios is now available entirely within the ETF structure.

Originally published on Advisor Perspectives

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