Where will active ETFs go next?

ETF growth is spurred by new launches, attracting more capital and asset inflows. In 2024, 510 active ETFs were launched – around 80% of all ETF launches – and three firms each launched over 30 active ETFs. Competition is clearly fierce, and ETFs are being driven to innovate.

The rise of new ETF providers and platforms goes hand-in-hand with increased competition, complexity and specialization in ETF markets. It’s an especially opportune time for active ETFs. In 2024, the top 20 active ETFs made up roughly 39% of all assets. Active ETFs offer a selection of strategies – thematic, sector-specific or special situations – and are typically more liquid and cost-effective than traditional funds. So, in this competitive environment, where will active ETFs go next?

Alternatives

Investor demand for alternative investments is contributing to active ETF growth. For example, in the US, Collateralized Loan Obligation (CLO) ETFs – ETFs that invest in managed portfolios of senior secured loans – have drawn in over US$19 billion since launch in 2020, and appeal is growing for CLOs in Europe too. Europe’s first-ever CLO ETF was listed on the Luxembourg Stock Exchange (LuxSE) in September 2024.

Private markets

Retail investors are increasingly entering private markets via semi-liquid funds. ETF providers are also exploring this avenue, particularly private credit exchange-traded products (ETPs) – several public-private credit ETF applications have been submitted to the US Securities and Exchange Commission (US SEC), albeit questions around underlying liquidity prevail.

Tokenization

Tokenization could prove to be an entirely new frontier, transforming the underlying technology of ETFs. Several managers are edging closer to trading tokenized shares of their funds (traditional and ETF) on the blockchain. There is certainly a case to be made for the fully tokenized ETF. Among other benefits, they could offer faster (close to immediate) settlement, and generally lower costs to issuers and investors. But, the move to tokenized ETFs will require complex technical changes to existing operating systems in the way of ownership tracking and custody of asset security, among others. As such, the issuers are still mostly in the testing phase and only a few players actively pursuing this avenue. In April 2025 the first-ever tokenized money market ETF was launched in Hong Kong.

Emerging technologies

ETFs offer investors exposure to a broad range of emerging technologies, and there is a particular buzz around artificial intelligence (AI). AI ETFs give investors exposure to the growth and innovation happening in the artificial intelligence space. These funds typically invest in companies developing, adopting or benefitting from AI technologies – think machine learning, robotics, data analytics and automation. The goal is to capture long-term upside from the AI revolution. According to Morningstar (as cited in Reuters), one-third of the two dozen ETFs with AI in their name were launched in 2024 alone.

Interest in crypto also prevails. In 2024, the US SEC approved Bitcoin ETFs and ETPs, amassing over US$49 billion nine months post-launch. In Europe, traditional asset managers are quickly moving into this space, with five key players having recently launched their own bitcoin ETPs.

While opportunities are present, they also bring new challenges. As ETFs expand, there is pressure on ETF infrastructure to evolve, ensuring transparency, intra-daily trading capabilities, and integration with advanced technologies. Managing liquidity and timely data for active ETFs is also a significant challenge. The success of ETFs – especially in the context of alternatives and tokenization – will rely on overcoming interoperability challenges.

EY offers a digital fund audit platform, Genesis, for active ETFs and liquid funds. Utilizing this platform, data from fund administrators is standardized, enriched with market information and utilized for automated validations. This enables auditors to analyze complete datasets, improving accuracy and facilitating quick detection of trends and anomalies, thereby providing fund managers with a timely view of their funds.

EY regularly publishes research on ETF development. Read our previous articles in our ETF series and . For a detailed look out at our newly launched technical analysis into the accelerating ETF market, read our article

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, EY Luxembourg Partner, Assurance

, EY Luxembourg Partner, Assurance, US Technical Desk Leader in Luxembourg

, EY Luxembourg Manager, Assurance