ETFs Enter New Era as Active and Innovative Funds Take Center Stage

BOSTON, MA – March 03, 2026 – The era of passive dominance in the Exchange Traded Fund (ETF) market is facing its most significant challenge yet, as a wave of global investors signals a decisive pivot towards active management and next-generation product structures. A landmark survey reveals that while appetite for ETFs remains at a record high, investors are fundamentally reshuffling their portfolios, moving capital away from traditional index-tracking funds in a fervent search for alpha and sophisticated risk management tools.

The 13th annual Global ETF Investor Survey from Brown Brothers Harriman (BBH) underscores this transformation, finding that an overwhelming 96% of institutional investors, fund managers, and financial advisors plan to increase their ETF allocations over the next year. However, this capital is not flowing towards the passive strategies that defined the last decade. Instead, 53% of respondents plan to actively reduce their allocations to index-based ETFs, while nearly half will cut back on both index and actively managed mutual funds to make room for a new breed of ETF.

The Great Reallocation: Active Management Takes the Lead

The move towards active ETFs is no longer a niche trend but a powerful, mainstream current reshaping asset flows. The global active ETF market, which stood at a robust $1.7 trillion at the end of 2025, is now at the heart of this strategic shift. This segment has grown at a blistering pace, with assets expanding by 65% annually between 2020 and 2024, far outpacing the 19% growth seen in passive products during the same period.

Investors are voting with their wallets. In 2024 alone, active ETFs attracted a staggering $312 billion in new capital, capturing 28% of all ETF inflows. This momentum has fueled soaring optimism, with 94% of investors surveyed by BBH believing active ETF assets will surge past $10 trillion within a decade. A confident 77% expect this milestone to be reached in just seven years.

“The next phase of ETF product growth will look very different from the prior decade, with greater emphasis on active management, expanded access to new asset classes, and the operational sophistication required to support more complex strategies at scale,” noted Tim Huver, Managing Director on the ETF Servicing Team at BBH, in the firm's press release.

The product pipeline reflects this reality. In 2025, active ETF launches matched passive launches in number for the first time globally, a clear indicator that issuers are racing to meet escalating demand. This surge is driven by the structural advantages of ETFs—such as tax efficiency, transparency, and intraday liquidity—combined with the potential for skilled managers to navigate volatile markets more nimbly than a static index.

Beyond Equities: The Hunt for Innovation and New Frontiers

Investor appetite for innovation extends far beyond simply adding an active manager. The survey reveals a near-unanimous desire to push the boundaries of the ETF wrapper itself to access previously walled-off asset classes and strategies.

A remarkable 99% of investors are open to the idea of private markets ETFs, signaling an enormous pent-up demand for democratized access to private credit, private equity, and other alternative strategies. These asset classes, traditionally the domain of large institutions, are now seen as a crucial source of diversification and potentially higher returns in a complex economic environment. While the creation of such funds presents significant operational and regulatory challenges—particularly around the valuation of illiquid assets and managing liquidity mismatches—the industry is clearly moving to solve them.

Similarly, 82% of investors would consider ETF share classes of existing mutual funds. This hybrid structure would allow established mutual funds to offer an ETF version of their strategy, giving investors the best of both worlds: the track record and expertise of a veteran fund manager combined with the cost, tax, and trading benefits of an ETF. Regulatory bodies like the U.S. Securities and Exchange Commission have been cautious, but industry momentum is building for a framework that could unlock trillions in mutual fund assets for the ETF market.

Interestingly, this enthusiasm for structural innovation does not yet extend to all corners of the digital asset world. Despite the hype surrounding blockchain, 58% of investors surveyed do not believe tokenization will fundamentally change financial markets, suggesting a degree of pragmatism and skepticism is tempering excitement for more radical technological shifts.

Volatility as a Catalyst: Specialized ETFs for Uncertain Times

The strategic shift toward more dynamic ETFs is not happening in a vacuum. It is a direct response to a macroeconomic landscape defined by inflation, fluctuating interest rates, and persistent geopolitical uncertainty. In this environment, investors are increasingly using specialized ETFs as precise tools for portfolio construction, income generation, and risk mitigation.

According to the BBH survey, investors are planning to increase allocations to several key categories:

• Dividend/Income ETFs (33%): In a world where consistent yield is paramount, these funds offer a steady stream of income and a potential hedge against inflation.
• Sector/Thematic ETFs (28%): These allow for targeted bets on industries expected to thrive amidst economic or geopolitical shifts, from cybersecurity and renewable energy to healthcare innovation.
• Defined Outcome ETFs (26%): Also known as buffer ETFs, these products have gained significant traction by offering a specified level of downside protection against market downturns, albeit typically in exchange for a cap on potential gains. They represent a direct response to investor demand for more predictable outcomes in volatile times.

This turn toward specialized and tactical tools highlights a broader trend: the ETF is evolving from a simple, low-cost instrument for broad market exposure into a sophisticated vehicle for executing complex, nuanced investment strategies.

A Shifting Competitive Landscape

This evolution is forcing a realignment across the entire investment industry. With 63% of investors planning to work with a greater number of ETF issuers, the market is becoming more fragmented and competitive. In this crowded field, product innovation alone is not enough. The survey reveals that 65% of investors believe superior client service and support are what make an ETF issuer stand out, placing a new premium on partnership and operational excellence.

This sentiment is echoed in reports from other major financial institutions. PwC projects global ETF assets could reach $35 trillion by 2030, while BlackRock forecasts that active ETF assets alone will triple to $4.2 trillion in the same timeframe. The consensus is clear: the ETF market is not just growing, it is maturing.

As investors demand more from their ETF allocations—more alpha, more income, more diversification, and more protection—issuers and the service providers who support them are being challenged to deliver a new generation of more complex and purpose-built products. The future of the ETF industry will be defined not just by its size, but by its increasing sophistication and its ability to adapt to the ever-changing needs of the modern investor.