The active ETF market split along strategy lines in 2025, with discretionary equity funds gaining 3.3% market share while systematic equity funds lost 1.1%, according to Morningstar data shared by Ben Johnson, head of client solutions and asset management at the firm.

The divergence shows not all active strategies performed equally, with the T. Rowe Price Capital Appreciation Equity ETF (TCAF) capturing $2.59 billion in one-year flows and delivering a 14.3% return, according to ETF Database, highlighting discretionary equity’s appeal.

TCAF targets higher-quality U.S. large-cap companies with above-average growth potential and carries a competitive 0.31% expense ratio, according to ETF Database. The fund now manages $6.34 billion since launching in June 2023.

Discretionary equity saw organic asset growth of 68.8%, according to the Morningstar data. The active ETF market reached $476 billion across 953 launches in 2025.

Discretionary fixed income topped all categories with $136.9 billion in trailing 12-month flows through December 31, according to the Morningstar data. The T. Rowe Price QM U.S. Bond ETF (TAGG) captured $1.42 billion of those flows over one year while delivering a 7.57% return and managing $1.54 billion in assets, according to ETF Database. TAGG’s approach is driven by a blend of fundamental research and quantitative implementation, with an appealing expense ratio of only 0.08%.

T. Rowe Price Targets Active ETF Cost Gap

T. Rowe Price responded to systematic equity’s market share decline by launching two active ETFs in early December. Those ETFs blend discretionary research with systematic implementation, according to a press release.

The firm is waiving fees through January 30, 2027 for the T. Rowe Price Active Core U.S. Equity ETF (TACU) and the T. Rowe Price Active Core International Equity ETF (TACN), bringing their net expense ratios to zero during the waiver period.

The approach targets cost-conscious investors who might otherwise choose systematic strategies, according to the release. TACU holds 550–650 U.S. large-cap stocks with a 0.14% expense ratio, while TACN holds 400–500 international stocks with a 0.20% expense ratio, after the current fee waivers expire.

Similar to TAGG’s approach, both of the new equity ETFs maintain low index tracking error while applying a blend of fundamental and quantitative research, according to the release. The strategy aims to capture investor demand for some degree of outperformance from active management while competing on the fees and portfolio exposure similar to their index benchmarks.

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