Many investors first associate ETFs with index tracking. But is it possible to have an ETF that combines the benefits of active management, where a fund manager selects stocks and adjusts positions, with the ability to trade throughout the day, transparent holdings, and lower fees? In the past, this might have seemed like having one's cake and eating it too, yet overseas markets have been exploring this concept for nearly two decades. This is the world of active ETFs.

Global Evolution: From Pilot Phase to Diversified Growth

Active ETFs are not a recent invention. The first true active ETF in the United States emerged back in 2008. To use an analogy, a passive index ETF is like a fixed meal set: it buys whatever is in the index. An active mutual fund is like a chef's customized dish: the fund manager freely picks stocks, but service is slow, barriers are high, and costs are significant. An active ETF, by contrast, turns the "customized dish" into a "standardized set meal": the chef is still in charge, but the process is more transparent, and you can place orders anytime during trading hours without waiting for end-of-day net asset value settlement.

The early development of active ETFs resembled a slow-moving pilot program. In the first phase, starting in 2008, active ETFs began in the U.S., but due to issuance requirements and holdings disclosure limitations, early products concentrated mainly on lower-risk, lower-turnover fixed income, rather than aggressively pursuing active stock selection. In the second phase, post-2016, product supply increased as listing standards became clearer, though the market was still driven by a few fixed income products and major institutions. The third phase, around 2019, saw the refinement of rules and maturing mechanisms, including ETF operational rules, semi-transparent structures, and derivatives usage, accelerating conversions from traditional mutual funds. The fourth phase, from 2020 onward, brought rapid expansion, with products diversifying from fixed income strategies into active equity, income enhancement, and multi-factor approaches. By 2025, U.S. active ETF assets exceeded $1 trillion, evolving from experimental products into a mainstream vehicle capable of supporting a wide range of investment strategies.

Capital Flows: From Product Benefits to User Experience

Data indicates that U.S. active ETF assets grew from roughly $22 billion in 2015 to nearly $1.4 trillion by 2025, representing a compound annual growth rate of about 52% over the decade. Why have these products gained such favor? Three reasons stand out. First, fees are relatively lower. When an active strategy is housed in an ETF structure, management fees typically undercut traditional open-end active funds. The average fee for overseas active ETFs is often half or even less than comparable active mutual funds. Second, trading is more flexible. Traditional active funds have one NAV per day, with subscriptions and redemptions settled at the day's closing price. Active ETFs can be bought and sold in real time during market hours, meaning you don't have to wait if you need cash urgently. Third, tax efficiency is higher. In markets with heavy capital gains taxes like the U.S., the in-kind creation and redemption mechanism of ETFs can reduce the tax burden generated by internal fund trading, offering tangible compounding benefits for long-term investors.

Market Maturity: From Asset Growth to Ecosystem Development

The maturation of active ETFs goes beyond asset growth; it is reflected in the formation of a complete market ecosystem. First, scale has reached the trillion-dollar level. As of March 2026, global active ETF assets stood at approximately $2.23 trillion, with U.S. active ETF assets near $1.4 trillion. Second, product offerings have become more diverse, covering equities, bonds, income enhancement, and various strategy directions. In the U.S., large-cap blend, income enhancement, and value strategies have all achieved significant scale. Third, active ETFs have entered the wealth management system. By the end of 2024, RIAs (Registered Investment Advisors) accounted for 61% of U.S. retail active ETF assets, becoming a crucial allocation channel. These factors indicate that the development of active ETFs is no longer just about an increase in product count, but the formation of a market ecosystem involving managers, investment strategies, trading mechanisms, and wealth management channels.

Investment Awareness: From Seeing Active Management to Understanding Risks

Nearly two decades of overseas experience with active ETFs also serves as a reminder: large product scale does not mean low investment risk. First, "active" simply means the fund manager has more decision-making latitude; it does not guarantee outperformance. Stock selection errors, style shifts, or strategy failures can all impact performance. Second, the ability to trade intraday does not mean you can always transact at your ideal price. ETF prices are determined by market supply and demand, which can lead to premiums or discounts; in illiquid conditions, bid-ask spreads may widen. Third, holdings disclosure methods vary among active ETFs. The U.S. market includes both fully transparent products that publish complete portfolios daily and semi-transparent products operating through proxy portfolios. Therefore, when selecting an active ETF, you cannot just look at the word "active"; you must also examine the investment strategy, fund manager, fees, liquidity, and disclosure practices.

Looking at China: Learning from Experience While Respecting Differences

The active ETF market in China is just beginning. Drawing on nearly two decades of overseas experience, we might avoid some detours. An active ETF is not an "automatic money printer"; rather, it packages active management into a more transparent, flexible, and cost-effective container. But a new container does not change the quality of what's inside; that still depends on the strategy and the people managing it. For newcomers, the key is not chasing the latest product, but understanding three fundamentals: What strategy am I buying? Besides management fees, what other costs exist? If the product underperforms periodically or experiences premiums or discounts, can I understand and tolerate that? Clarifying these points will help you navigate any new product without losing your way.

Risk disclosure: This content reflects the views of the original author and may change with market conditions. It does not constitute any investment advice or commitment. The products mentioned are equity funds, which belong to securities investment funds with relatively high expected risk and return. Their expected returns and risks are higher than those of hybrid funds, bond funds, and money market funds. Before purchasing any fund product, please carefully read the fund contract, prospectus, and other legal documents, and select products that match your risk tolerance. Funds involve risks; investment should be undertaken with caution.