Key Takeaways
A boom in actively managed exchange-traded funds that saw a record number of launches in 2025 is pushing investment costs higher, with asset managers like American Century Investments capturing over $128 billion in assets.
"When you look at our lineup, it’s fairly broadly diversified in both investment styles... We started on this active journey many years ago,” Sandra Testani, American Century’s head of ETF product and strategy, said in an interview at the Exchange conference.
The trend has been a boon for issuers, with American Century's ETFs pulling in over $16 billion in 2026 alone, almost all flowing into its active suites. This contrasts with the broader market's cheapest funds, where expense ratios can be as low as 0.09%, like the Vanguard ESG U.S. Stock ETF. More complex active strategies command higher fees, such as the Pacer Trendpilot 100 ETF's 0.65% expense ratio.
The shift toward active management means investors must scrutinize whether a fund's strategy and potential for outperformance justify its higher cost. With issuers benefiting from the higher revenue streams of these products, the trend of costlier, more complex ETFs is set to continue, increasing the due diligence burden on retail and institutional investors alike.
The success of American Century Investments highlights the industry's pivot. The firm, now a top 20 U.S. issuer, has built a bifurcated offering. While its traditional brand includes a mix of strategies, the explosive growth has come from its Avantis family of funds, launched in 2019.
The Avantis lineup, which emphasizes factors like lower valuations and higher profitability, has swelled to over $120 billion in assets under management. Its five original funds, including the Avantis U.S. Small Cap Value ETF (AVUV) with $25.6 billion in assets, are now the largest in its suite, demonstrating strong investor appetite for this quantitative, yet active, approach.
This shift comes at a literal cost to investors. While passive index funds have driven fees to near zero, the new wave of active products reverses that trend. The Pacer Trendpilot 100 ETF (PTNQ), for example, uses a rules-based strategy to time the market and charges a 0.65% expense ratio for it. Thematic funds, like the iShares Global Clean Energy ETF (ICLN), also carry higher fees, at 0.39%.
These figures stand in stark contrast to broad, passive ESG funds like the Vanguard ESG U.S. Stock ETF (ESGV), which charges just 0.09%. The higher fees are meant to pay for the research, expertise, and trading costs associated with active management, but they create a higher hurdle for the fund to deliver market-beating returns.
The rise of active ETFs requires a new level of diligence from investors. Just as regulators and investors have grown concerned about "greenwashing" in ESG funds—where marketing claims don't match the portfolio—a similar risk exists with active strategies. Investors must look beyond the label to understand if a fund's methodology justifies its premium fee.
Performance is not guaranteed. The iShares ESG Aware MSCI USA ETF (ESGU), for instance, has underperformed the S&P 500 over the last five years, despite its ESG screening. For investors, the message is clear: the boom in active management offers more choice, but it also demands more scrutiny to ensure that higher fees are translating into tangible value, not just higher revenues for asset managers.
This article is for informational purposes only and does not constitute investment advice.
