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Not All Active ETFs Are Created Equal
Explore the different types of active ETFs, how they are categorized, and where investors are allocating assets across discretionary, systematic, and other active strategies.
Key Takeaways
- While active ETFs now outnumber passive ETFs by fund count, the growth of the category is being driven by a diverse mix of strategies that extend beyond traditional active management.
- Morningstar's Active/Passive Strategy Type framework separates active ETFs into discretionary, systematic, and other categories, providing a more nuanced view of how these funds are managed.
- Despite the rapid expansion of active ETFs, investor assets remain concentrated in discretionary and systematic strategies, while many Active-Other ETFs have attracted relatively little capital.
Much has been made about the massive expansion of actively managed exchange-traded funds over the past several years. In some sense, that’s understandable. Asset managers and investors have been migrating toward them.
At the end of June, actively managed ETFs outnumbered their passively managed counterparts by a wide margin. Halfway through 2026, a little more than 2,100 ETFs tracked an index, while more than 3,200 ETFs did not.
However, splitting ETFs by that simple criterion is an outdated way to sort them. It says nothing about the different types of actively managed ETFs or the unique risks some of them incur. While it’s true that many don’t track an index, it’s also true that many are not overseen by a portfolio manager who is shrewdly researching and selecting stocks or bonds.
Defining “Active”
Sorting ETFs and mutual funds based on whether they track an index or not is a good first step, but it’s only a first step. Asset managers use a wide variety of investment processes among funds that don’t track an index. Some have enduring merit while others are speculative.
Morningstar recently introduced the Active/Passive Strategy Type data point, which sorts ETFs into more granular active and passive groups. The group an ETF belongs to is determined by a large language model that was trained to classify ETFs based on the investment objective in their prospectus. The same model also works on mutual funds.
How Are Active ETFs Categorized?
Morningstar’s framework organizes active ETFs into three basic buckets:
Active-Discretionary
The Active-Discretionary bucket contains funds with fundamental or discretionary active managers—the type of strategies that typically come to mind when talking about actively managed portfolios.
Examples include Fidelity Total Bond ETF (FBND) and Capital Group Growth ETF (CGGR). These ETFs have managers who assess market conditions, scrutinize financial statements, and use that analysis to construct portfolios. In most instances, the goal is to outperform the market or a segment of the market through security selection and portfolio construction.
Active-Systematic
The Active-Systematic bucket holds funds that don’t track an index but still use a defined set of rules to select and weight stocks and bonds for their portfolios.
Examples include ETFs from Dimensional and Avantis Investors. The goal of these funds is often the same as that of discretionary active managers—to outperform the market or a segment of the market. The difference is that these funds follow a prescribed set of rules without codifying them in an index, affording greater flexibility to trade and change their rules than in an index fund.
Active-Other
The Active-Other category is a metaphorical junk drawer of ETFs with a wide range of objectives. These strategies may seek to re-engineer an asset’s total return to distribute more income; provide levered or inverse exposure to an asset; mitigate downside risk; or combine multiple objectives into a single product.
Examples include levered and inverse single-stock ETFs, defined outcome ETFs, and ETFs that advertise astronomical yields, among others. They typically employ derivatives to achieve their objectives, and some explicitly leverage their exposures.
Most lack the characteristics of strong long-term investments and are generally best used sparingly, if at all.
How Are Passive ETFs Categorized?
Passively managed ETFs can be split into two groups.
Funds in the Passive-Index Tracking group explicitly track an index. Meanwhile, the Passive-Other category contains products that track the price movement of an asset by physically holding it, such as SPDR Gold Shares (GLD) and iShares Bitcoin Trust ETF (IBIT).
How Investor Assets Are Allocated Across Categories
Breaking out the number of ETFs in each group and the amount of money invested in them reveals what’s really happening in the marketplace.
At the end of June, there were 3,211 actively managed ETFs and 2,153 passively managed ETFs trading on US exchanges. The Passive-Index Tracking group contained the most ETFs, while the Active-Other and Active-Discretionary groups ranked second and third, respectively, by fund count.
The number of ETFs in the Active-Other category substantially increases the overall active ETF count, but it doesn’t necessarily indicate a broad resurgence in traditional active management.
These ETFs don’t employ managers conducting fundamental research, nor do they typically rely on sensible, repeatable investment processes. Most are speculative, complex, expensive, and have struggled to attract investor assets. The median ETF in this category held only $29 million in assets.
The asset picture tells a different story than the fund-count picture. Although Active-Other represented 44% of all actively managed ETFs, it accounted for only 17% of assets invested in active ETFs. In other words, most investor dollars in actively managed ETFs remain concentrated in those run by fundamental managers or ones following a systematic process.
Who’s Winning Among Active ETFs?
A closer look inside the Active-Discretionary and Active-Systematic groups highlights which approaches are resonating most with investors.
Within the Active-Systematic category, two asset managers dominate: Dimensional and Avantis. Together, they account for roughly two-thirds of all assets invested in the category. Dimensional’s ETFs alone represented almost 46% of all Active-Systematic ETFs. Gold-rated Dimensional US Core Equity 2 ETF (DFAC) was the largest actively managed ETF at the end of June 2026, with more than $47 billion under management.
The Active-Discretionary category is more diversified. Capital Group and JPMorgan manage the largest asset bases and sponsor the category’s two largest ETFs. Gold-rated JPMorgan Ultra-Short Income ETF (JPST) held just under $40 billion at the end of June, while Gold-rated Capital Group Dividend Value ETF (CGDV) was close behind.
There’s a clear story playing out among active ETFs: Large asset managers offering sensible, repeatable investment strategies at relatively low costs have attracted the most investor capital.
At the end of June, actively managed discretionary and systematic ETFs accounted for about 10% of all ETF assets. Whether that share continues to grow remains to be seen. The passive ETF market is a behemoth that was built over decades, while actively managed ETFs have only begun to proliferate over the past five years, and more are on the way.
