Originally published at: 2025: Year of the Active ETF – InvestEngine Insights
The active European Exchange Traded Fund (ETF) market continued its impressive growth through 2024, and is likely to continue to grow rapidly over the coming year. With this growth, we believe active ETFs are being seen as a compelling, cost-efficient pathway to markets, and can become a key part of investor’s portfolios.
Active ETFs moving into the mainstream
The European ETF market continued its impressive growth in 2024, gathering a record-breaking €161bn of flows through the first three quarters of the year and surpassing $2tn in asset under management for the first time1. Its popularity with investors is a function of several factors, including the low cost, ease of use, liquidity, diversification potential and transparency of ETF solutions.
Despite this, one area of the marketplace remains relatively under-represented: active management. Fortunately, this is now changing as technological innovations are enabling the most advanced and resourceful managers to provide active strategies in ETFs alongside the typical advantages of their passive counterparts.
Investors are taking note, and this is reflecting in fund flows, with European active ETF assets under management expanding sharply from €26bn to €42bn over the past year2. PWC expects the global ETF market to grow to $20tn in assets under management by 2030, a 17% compound average growth rate3, and we anticipate that active ETFs’ will grow even faster, increasing their share as more investors discover their benefits.
What we mean by ‘active ETF’
Our current range of active ETFs incorporates research insights to help deliver returns on investment that differ from a benchmark, as an active mutual fund might, while also providing other attractive characteristics typical of passive ETFs* (which mutual funds might not).
These include a high level of liquidity and transparency, so that investors understand the exact exposures they are getting and can trade in and out at short notice. They also include a high level of diversification and low tracking error**, allowing investors to broadly follow the underlying market without significant deviation. Finally, and perhaps most importantly for professional investors, all these characteristics are delivered to the end investor in a cost-effective manner, which has only been made possible through our significant investments in people and technology over many years.
Incorporating research insights in a cost-effective manner
The foundation of our ETFs is their ability to take advantage of investment insights from within Fidelity’s extensive global investment platform. This source of market insight and differentiation can help deliver relative value compared to a benchmark over extended timeframes and is distinct from anything else within the marketplace. It cannot easily be reproduced, but as it already exists within our business our ETFs can deliver it in a cost-effective manner.
A key feature of our active ETFs is that the portfolios tilt towards securities viewed positively by our investment team. However, unlike mutual funds, which trade continually, our ETFs rebalance periodically at times when the efficacy of portfolio adjustments is the greatest (e.g., following a market-moving event). This helps to ensure cost-efficiency, while still ensuring that portfolio exposures are dominated by securities that our investment team views favorably on an ongoing basis.
Delivering diversification and low tracking error
We recognize that when asset allocators seek to invest in a specific asset class or market, they generally want exposure to broad macroeconomic trends similar to what can be found in that market (e.g., sector exposures).
We have therefore developed sophisticated technology to deliver a second key characteristic of our ETFs – that their macro-factor exposures are closely aligned with those of their respective benchmarks, without compromising their ability to tilt towards securities we view favorably.
To make this happen, our investment managers use a lot of our exclusive data from our global research platform. This helps to improve the mix of factors in our investment portfolios by informing and adjusting how much we invest in different assets. While the past performance our investments doesn’t guarantee how they will do in the future, this approach has helped our ETFs limit how much they stray from their target and can, hopefully, help provide more gains than losses over time.
Ease of access (and more cost efficiency)
When it comes to accessing the market and managing how easily we can buy and sell investments, it can be tricky for active strategies. We handle this in part by using advanced processes to make sure our investments are spread out the right way in our portfolios. But we also work with certain trusted partners who can help us trade cost-effectively, whether we’re adjusting our portfolios or managing how money moves in and out.
These trusted partners know exactly what investments are in each ETF at the beginning of the day, and how much of each one there is. This information is made public through our website so everyone can see it, which helps make sure everything is fair and clear. They use this information to offer similar sets of investments from their own supplies, which helps make it easier and cheaper to trade, especially in markets where it’s harder to buy and sell, like the high yield bond market. It’s all these detailed processes working together that make it easier for us to put our changing investment strategies into action.
In operational terms, we work with our distribution partners to ensure the easiest access to our ETFs through multiple platforms and exchange listings across Europe.
This content is part of a sponsored partnership with Fidelity. It is for educational purposes only and does not constitute investment advice. Capital at risk.
Glossary
Passive exchange-traded funds (ETF): It is is a financial instrument that seeks to replicate the performance of the broader equity market or a specific sector or trend. Passive ETFs mirror the holdings of a designated index—a collection of tradable assets deemed to be representative of a particular market or segment. Investors can buy and sell passive ETFs throughout the trading day, just like stocks on a major exchange. (Investopedia.com)
Tracking error: It is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark.
Sources
- Morningstar Direct European ETF Asset Flows Update – Q3 2024
- ETF Express
- https://www.pwc.com/gx/en/financial-services/publications/assets/ETF_2026_PwC.pdf
Rating agency Scope finds active ETFs growing fast across Germany – ETF Express: Scope says growth in the active ETF market segment in Germany has been rapid in the past year, with assets under management of around EUR42 billion at end August, more than 60 per cent higher than just over a year ago when assets under management stood at EUR26 billion at end June.
3https://www.pwc.com/gx/en/financial-services/publications/assets/ETF_2026_PwC.pdf
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