Active ETFs that raise more than $100 million in their first year have shown a trend of growing to exceed $1 billion by year three, on average, according to a recent report from Broadridge Financial Solutions, Inc. This highlights the importance of early momentum in the rapidly expanding active ETF market, which has seen significant growth from $81 billion in 2019 to $631 billion in 2024.
The study analyzed 814 active ETFs with at least a three-year track record and found that only 11% of funds reached the $100 million threshold that is associated with long-term success. The research also revealed that the top three managers control 48% of active ETF assets, while the top 10 managers control 77%. These market leaders have been able to establish a strong foothold in the industry by achieving early success.
Despite the concentration of assets among a few key players, the report noted a decline in concentration levels among the top 10 managers from 90% in 2019 to 77% in 2024. In comparison, active mutual fund concentration has remained steady at 56% during the same period.
To achieve “escape velocity” in the active ETF market, managers should consider three strategic approaches outlined in the report. Distribution through registered investment advisor (RIA) channels has proven to be the most accessible for new funds, with RIAs holding 61% of active ETF assets. Broker-dealer and wirehouse channels present higher barriers due to compliance restrictions, making RIA channels the primary entry point for many managers.
Successful managers often leverage specialized investment styles, proprietary distribution channels, or strong brand identity to stand out in a competitive market. JPMorgan Asset Management is highlighted in the report as a prime example, accounting for 9% of active ETF assets and excelling in all three categories.
By targeting high-potential advisors who already use active ETFs, managers can improve conversion rates and gross sales. Advisors with high scores generated three times higher gross sales than lower-scoring advisors, indicating the importance of engaging with the right audience.
Active ETF adoption varies across distribution channels, with RIA platforms showing the highest penetration at 6.8%, compared to 2.9% for wirehouses and 2.5% for broker-dealers. However, inflow percentages exceed asset percentages across all channels, suggesting that active ETFs are gaining market share.
Overall, the research underscores the significance of early success and strategic positioning in the active ETF market, where a few key players dominate but opportunities for growth remain for new entrants with the right approach.
