Australia's Exchange Traded Funds (ETF) boom is in full swing, and it's not stopping anytime soon.  As new ETFs are introduced each month investor appetite contributes to grow. It’s a trend that’s reshaping how Australians invest.

The growth doesn’t surprise me, but what I do find interesting is the shift towards Active ETFs.

Although traditional index-based ETFs still dominate, there’s a noticeable uptick in in the number of Active ETFs entering the Australian market.

In this first part of a two-part blog, I’ll explore. 

• Australia’s phenomenal take up rate of ETFs,
• The growing popularity of Active ETFs both here and abroad,
• What Active ETFs are and how they differ from their index-based cousins.
  
  

ETF Popularity Explosion in Australia and Around the World

The growth of ETFs in Australia over the past few years has been nothing short of remarkable. Both funds under management (FUM) and the number of available ETFs has surged — painting a clear picture of investor enthusiasm.

Let’s take a quick look at the numbers:

• June 2023: $145 billion FUM | 298 ETFs
• June 2024: $200 billion FUM | 351 ETFs
• June 2025: $272 billion FUM | 388 ETFs

That’s an $127 billion increase in just 24 months – almost double - (no doubt supported by strong equity markets but impressive nonetheless). This alongside a steady stream of almost 100 new ETFs. 

Clearly, ETFs have cemented themselves as a go-to investment vehicle for Australians.   

But it’s not just in Australia. 

As of February 2025, Global ETF assets had surged to $US14.52 trillion.  Most of that growth was in the USA but Europe, Canada and the Asia Pacific Region have also increased significantly.

• USA: $10.75 Trillion FUM | 32% Increase form End 2023.
• Europe:  $2.4 Trillion FUM | 32% Increase form End 2023.
• Asia Pacific: $957 Billion FUM | 20% Increase form End 2023.
• Canada: $415 Billion FUM | 33% Increase form End 2023.

These numbers show a huge jump in investor interest worldwide and highlight the growing appeal of ETFs as a preferred investment option for many.

Active ETFs Are a Global Trend

While index funds still dominate the ETF market, Active ETFs are gaining significant ground both here and around the world.

Over the past few years, a greater proportion of Australia’s new ETF listings were Active funds. 

In 2023, 46% of all new ETF listings — that’s 26 out of 56 — were Active. By the first half of 2024, the trend accelerated to 68%  of new launches or —28 out of 41.  Of the 351 ETFs available in June 2024, 94 could have been classified as Active. This  trend continued and now sits comfortably over 100.  

The movement towards Active ETFs isn’t just happening in Australia—it’s picking up speed around the world.

Globally Active ETFs have entered a new era. According to a Trackinsight report I read in 2024 

• Active ETFs accounted for 51% of all new ETF listings globally, surpassing passive strategies for the first time.
• In the USA Active ETFs crossed the $1 trillion FUM mark, driving 70% of new launches and 25% of total flows.
• In Canada, Active ETFs drew over one-third of inflows and accounted for 75% of new launches
• As of February 28, 2025, there were 3,307 active ETFs listed globally—more than double the total from 2019. Representing represent 27% of all ETFs world-wide, up from just 13% six years ago.

These are some serious numbers, which makes me wonder—what’s driving this trend? Why are more investors turning to active strategies? Is it the end investor driving the trend or is something else at play?   

Before we tackle those questions let’s take a look at what Active ETFs are. 

What is an Active ETF?

The easiest way to get your head around Active ETFs, starts with understanding what a managed fund is.

Managed funds, called mutual funds overseas, operate on the simple idea that a professional fund manager can pick investments better than the average person.

So instead of trying to pick investments themselves, multiple investors would hand over their money to a fund manager in exchange for units in the fund. That manager would pool the cash and then buy and sell investments at their discretion. Ideally, the manager’s expertise leads to profits, which justified the ongoing fees they charged.

The downside of traditional managed funds was that they weren't listed on the stock exchange. This meant you had to fill out lengthy application forms, send off a cheque, and wait weeks to get a confirmation notice showing you owned units in the fund. Not exactly quick or convenient.

Selling your units was another slow process. You had to notify the fund manager, and they would sell your units at a time of their choosing—usually at the end of the trading day or week. For today's investors (and advisers like me), this process is just too slow and outdated.

Enter Active ETFs

These modern investment vehicles offer the same professional management as traditional funds — but with the convenience of being listed on the stock exchange. You can buy and sell them throughout the day, just like a regular stock. No paperwork. No waiting. Just instant access and flexibility. You’re still part of a pooled investment, but now you get the best of both worlds: expert management and real-time trading. Happy days!

How do Index Funds differ from Actively Managed Funds

The key difference between an index-based ETF and an Active ETF comes down to what they are trying to achieve.

An index-based ETF has a straightforward goal: its tries to track a specific market index, like the ASX 200 or S&P 500, to replicate its performance. The ETF is designed to mirror the index as closely as possible, meaning it holds the same stocks (or other assets) in the same proportions as the index.

It’s what’s commonly called a passive approach—there’s no attempt to outsmart the market. If the index goes up, the ETF goes up, and if the index drops, so does the ETF.

In contrast, an Active ETF has a different objective altogether. Rather than simply matching the performance of a chosen index, the goal of an Active ETF is to beat that index.

The professional fund manager behind the ETF is actively selecting, buying, and selling investments based on their research and expertise, aiming to outperform the market. This hands-on approach gives the manager flexibility to make decisions that they believe will add value, whether that’s picking undervalued stocks or adjusting the portfolio based on market trends.

Wrapping Up: More Choice, More Flexibility

There’s no doubt ETFs have exploded in popularity over the past few years. They’ve made it easier than ever for both professional and DIY investors to build diversified investment portfolios.

The influx of active ETFs means investors have more choice than ever — but with more choice comes more complexity — and sometimes, confusion.

In Part Two of this blog, I’ll dive into:

• Why so many Active ETFs are hitting the market.
• What makes them attractive to investors.
• What I look for in an active ETF.
• Where and how to use them effectively in your portfolio.

If you would like to discuss any of the ideas raised in this blog, feel free to contact me.

This blog’s aim is to provide general information only.  It should not be relied upon as personal financial advice.  While all care was taken at the time of writing I make no representations as to the accuracy, completeness, suitability, or validity, of any information contained within.  I strongly recommend investors consult a financial adviser prior to making any investment decision.