2024 Has Been a Breakout Year for Active ETFs

Active exchange-traded funds have been one of the year’s big buzzwords. As they become more widely available, here’s a look at what has hit the market and what has hit Morningstar analysts’ radar this year. We now rate more than 90 active ETFs.

While active ETFs have been around for almost two decades, they didn’t start to take off until a key 2019 regulatory change. The SEC’s Rule 6c-11, commonly referred to as the “ETF Rule,” spurred much of the innovation, by streamlining the ETF approval process and permitting custom security baskets. More than 300 active ETFs were launched in 2024 through September.

More than 75% of the launches were equity and alternative active ETFs.

So far this year, three firms lead the way—Innovator with 31, PGIM with 26, and First Trust with 25. Most of these ETFs are buffer ETFs, which fall in the options-trading Morningstar Category. These strategies allow investors to participate in some of the market’s upside while protecting losses up to a certain point, which is known as the buffer. For example, an ETF with a 12 buffer would shield investors from losses of up to 12%. If the market fell any further, investors would incur the difference between the buffer level and the actual loss.

A handful of strategies launched in the third quarter of 2024 stand out. Jensen entered the fray with Jensen Quality Growth ETF JGRW, which mimics the time-tested mutual fund Jensen Quality Growth JENSX. Schwab launched Schwab Ultra-Short Income ETF SCUS; the ultrashort bond category has been a popular one for active ETFs. Federated Hermes’ quant group MDT launched four equity strategies.

Active ETFs took in roughly $190 billion in assets in the first nine months of the year, with the top 20 ETFs gobbling up 40% of the take. Two of J.P. Morgan’s popular equity-income products land in the top 10. BlackRock US Equity Factor Rotation ETF DYNF has taken off this year, with more than $10 billion in inflows. It tries to outperform the US equity market by tilting toward factors, such as value, growth, momentum, or quality, that it thinks will be in favor.

By Morningstar Category, large-blend, ultrashort bond, and derivative income ETFs took in more than a third of all inflows year to date.

Not all active ETFs have flourished, though. Five ARK Invest strategies have seen significant outflows so far in 2024. The firm’s flagship ARK Innovation ETF ARKK accounted for more than $2.5 billion of the more than $4.0 billion the funds have seen leave. Fifty-five strategies were also liquidated or merged away this year. This trend should continue as many active equity ETFs may be too small to cover their costs. Only 40% of active equity ETFs have more than $100 million in assets.