A More Active ETF Marketplace Is Emerging

The rise of ETFs changed the calculus for investors, as these funds turned broad market exposure into something transparent, tradable and low-cost. This made ETF investing remarkably simple: Own a broad index, and let a decade of US financial dominance do the rest.

That formula is now harder to run on autopilot. Rates have climbed and held, the dollar has weakened and the valuation gap between US and international stocks has rarely been wider.

In response, the ETF itself has evolved. What began as a straightforward way to track an index is now a sprawling marketplace.

“More choice is a positive for investors generally, but it’s certainly not getting any easier out there to differentiate your strategies,” says Jamie Harrison, Head of ETF Capital Market at MFS Investment Management. Harrison oversees a growing lineup of actively managed ETFs driven by MFS’s fundamental research and quantitative analysis.

In a market like this, the ETF wrapper remains a powerful tool, but the edge increasingly lies in knowing what belongs inside it, he says.

Two stories are playing out simultaneously in the ETF market. The first is a boom story: After a record $1.5 trillion in US-listed ETF flows in 2025, the surge has continued, with over 800 new products launched through June 2026 amid an uptick in interest in increasingly specialized strategies.

The second story is the changing product landscape, with actively managed ETFs accounting for 84% of new product launches in 2025. Passive funds still absorb the largest share of flows, so the money, for now, remains concentrated in the established playbook. But this shift is creating a much more varied market and expanding what an ETF can be: The same wrapper that made passive investing low-cost, liquid and transparent can also house active investment decisions.

“The same toolkit that a passive ETF would use in terms of the tradability and the tax efficiency is also available to investors in an active strategy,” says Harrison.

That opens the door to markets where an active approach can offer an advantage. Fixed income is one example, and Harrison says he sees active bond ETFs as still “very much in the early innings,” with $7 trillion sitting in money-market funds that could provide a significant source of demand if rates begin a prolonged decline. MFS is already well positioned for that potential, building on its two existing fixed-income ETFs with two new short-duration products that launched in September.

Yet fixed income is only one part of a much broader shift. Active ETFs can mean one of many different things, Harrison says, from fundamental strategies and targeted tracking to derivatives and enhanced income. That variety is changing how investors size up what they're buying.

“Advisors aren't just focused on tickers anymore,” says Harrison. “They're evaluating the issuers themselves.”

As the ETF universe becomes more specialized, the investment approach behind the product starts to matter alongside the exposure itself. MFS, for one, aligns its ETF lineup with the same research-driven strategies and capabilities that it already leverages on the mutual fund side.

“We’ve approached our ETF franchise in the same way we approached launching the first mutual fund over 100 years ago. Our investment teams are leaning into those strengths and building on our firm’s century-long track record of delivering value,” says Harrison.

The macro backdrop gives the active trend real stakes. As returns diverge across regions, sectors and companies, the broad index is doing less of the work — and the decisions inside the ETF become more consequential.

The shift is beginning to show up in where investors are putting their money. Active ETFs account for just 12% of ETF assets, Harrison says, but are already capturing 40% of flows.

In a more complex market environment, investors want more than broad exposure.

They want the flexibility to be selective and the ability to respond as conditions change. Active ETFs offer one way to bring that decision-making approach into the same low-cost, liquid structure that made ETFs such a powerful tool.

The ETF wrapper provides the access and efficiency that investors have come to expect. The investment team provides the judgment that determines what sits inside it.

In the next phase of ETFs, the opportunity is in putting both to work in the same portfolio.