Morningstar’s Guide to Active ETFs

Key Takeaways

• Exchange-traded funds used to be synonymous with
  passive investing
  , but that has changed with the rise of actively managed ETFs.
• Nearly 1,800 new
  actively managed ETFs
  have hit the US market in the past six years.
• Morningstar now rates more than 180 active ETFs.

Recent Active ETF Insights From Morningstar Analysts

Nearly 1,000 active ETFs launched in 2025, making up 35% of the roughly 2,800 US-domiciled active ETFs, Morningstar senior analyst Stephen Welch explained. In addition, the top 25 active ETFs took up roughly one-third of the nearly $475 billion in active ETFs’ 2025 inflows.

“When it comes to new launches, active ETFs are asset managers’ vehicle of choice now,” Welch said.

By comparison, only about 150 passive ETFs were launched in 2025, bringing the total of US-domiciled passive ETFs to about 3,500. Meanwhile, just 95 traditional mutual funds were launched last year.

2026 Active ETF Flows by Morningstar Category YTD

What Should Investors Know About Active ETFs?

Active ETFs are run by managers or management teams that select securities to buy. Most aim to achieve better risk-adjusted returns than their benchmarks, but many funds have fallen short.

Many highly respected, successful asset managers—Vanguard, Fidelity, T. Rowe Price, and Capital Group, among them—are launching active ETFs or converting existing actively managed mutual funds into actively managed ETFs.

Bryan Armour, Morningstar’s director of ETF and passive strategies research for North America, sees active ETFs as offering investors better odds of success than traditional mutual funds. Active ETFs’ lower fees mean they provide a pretax benefit versus mutual funds. Other ETF advantages over mutual funds include:

• Greater tax efficiency
• Insulation from buying and selling by other investors in the fund
• Lower trading costs because of in-kind creations and redemptions

3 ETFs for a Small-Cap Revival

These ETFs will soar if small-cap stocks roar back.

4m 39s Mar 6, 2026

Watch

How to Evaluate Active ETFs for Your Portfolio

Choosing an active ETF requires more than picking the one with the lowest

. Several factors can determine a fund’s success or failure, including its strategy; the liquidity, scalability, and diversification of its holdings; and how efficient it is at tax management.

Not all active ETFs are alike. As a group, actively managed funds haven’t done a very good job of beating their indexes, but some active managers have outperformed. Plus, there are certain pockets of the market—particularly among non-US stocks and bonds—where it might make more sense to be active.