Active exchange-traded funds (ETFs) have become a powerful tool for investors seeking professional management, tax efficiency, and intraday liquidity – all within the familiar ETF wrapper. Yet despite their rapid growth, several myths continue to shape investor perceptions. Let’s explore five of the most common misconceptions – and the evidence that dispel them.
While ETFs were originally built around passive index tracking, the composition of the market has shifted. As of August 14, 2025, there are more active ETFs (2,273) than passive ETFs (2,142) in the U.S.1 And while legacy passive ETFs still hold most of the assets, the majority of new ETF launches today are active – with about 85% of the nearly 600 ETFs launched in 2025 falling into the active category.1
This growth reflects increasing demand for professionally managed strategies across both equity and fixed income. Active ETFs are no longer niche – they’re a central and expanding part of the ETF ecosystem with proven traction across both retail and institutional channels, driven by their structural and strategic advantages. And while traditional active mutual funds have struggled – only 21% outperformed their passive peers over the past decade2 – active ETFs may be better positioned to succeed thanks to their cost-conscious fees, tax efficiency, and intraday liquidity.
Active ETFs benefit from the same in-kind redemption mechanism that makes passive ETFs tax efficient. This structure allows managers that are rebalancing their portfolio to remove low-basis securities without triggering capital gains, helping minimize current year taxable distributions.
While active strategies may involve more trading, many active ETFs still deliver low or zero capital gains distributions, especially compared to mutual funds. For tax-sensitive investors, active ETFs offer a compelling blend of flexibility and efficiency. Morningstar notes that active ETFs offer better odds of success than traditional mutual funds – thanks in part to their structural advantages like lower fees and reduced trading costs.2
Liquidity in ETFs is supported by both the secondary market – where investors trade ETF shares – and the primary market, where Authorized Participants3 create or redeem shares (based on market demand) in exchange for the underlying securities. This dual-market structure allows both active and passive ETFs to scale efficiently and maintain similarly attractive bid-ask spreads, even when trading volumes appear modest.
That means that the average daily traded volume (ADV) for any ETF is not the sole factor for determining liquidity. Many active ETFs hold large-cap, highly liquid stocks, that may make them easier to trade than products focused on small-cap equities or less liquid fixed income securities. Advisors can use tools like indicative NAVs and liquidity screens on the underlying portfolio securities to assess execution quality with precision and confidence.
Most active ETFs disclose daily holdings, offering more transparency than traditional mutual funds, which typically only report monthly or quarterly.
While semi-transparent active ETFs do exist, they represent a small portion of the overall active ETF universe. Even these ETFs provide regular updates, detailed strategy descriptions, and risk metrics. For the vast majority of active ETFs, transparency is a core strength – giving investors and financial professionals the insight needed to understand exposures and manage portfolios effectively.
While it’s true that there are some actively managed leveraged and inverse ETFs on the market that are designed for short-term tactical trading, the broader universe of active ETFs includes a wide range of strategies suitable for long-term investors.
These ETFs range from traditional, fundamental bottom-up strategies to quantitatively driven and derivative income strategies that use options, seeking to generate yield and reduce risk. Many active ETFs are built as core portfolio holdings, not speculative tools, and are used by advisors and financial institutions to complement passive allocations and enhance portfolio resilience.
Active ETFs combine the benefits of professional management with the structural advantages of ETFs – liquidity, transparency, and tax efficiency. With adoption growing and misconceptions fading, active ETFs are becoming a cornerstone of modern portfolio design across asset classes and investment styles. For financial professionals, understanding the evolving role of active ETFs is key to building resilient, tax-aware portfolios in today’s dynamic market.
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1 Source: ETF Action, FactSet as of 8/14/25
2 Source: Morningstar, Why You Should Pay Attention to Active ETFs, August 2025.
3 Authorized Participants (APs) are specialized institutional firms – typically large banks or trading desks – that help maintain ETF liquidity by creating or redeeming ETF shares in the primary market. When demand rises or falls, APs exchange ETF shares for the underlying securities, helping keep ETF prices aligned with their net asset value (NAV) and supporting tight bid-ask spreads.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, money market, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.
The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
Exchange-traded fund risk: Exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns.
Active ETF risk: Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing.
ALPS Distributors, Inc. (member FINRA) is the distributor for Natixis ETFs. ALPS Distributors, Inc. is not affiliated with Natixis Investment Managers. Natixis Distribution, LLC (member FINRA | SIPC) is a marketing agent.
