2025: The Year of Active ETFs – A Strategic Shift in the Investment Landscape

The rise of passive investing over the past two decades has reshaped the financial markets, with low-cost index-tracking ETFs dominating asset flows and reshaping investor behavior. Yet, a tectonic shift is now underway. In late 2023, David Spence, CEO of JPMorgan Asset Management, declared 2025 as “The Year of Active ETFs,” signaling a bold pivot toward active management as a means to address evolving investor needs and market dynamics. This declaration underscores a strategic realignment in the ETF ecosystem—one that could redefine how capital is allocated in the coming years.

The Passive Dominance and Its Limits

Passive ETFs have thrived on simplicity and cost efficiency, amassing trillions in assets by tracking broad market indices. reveals a meteoric rise, from $1 trillion to over $9 trillion in the U.S. alone. However, this success has come with trade-offs. Passive strategies inherently lag during market downturns and fail to capitalize on nuanced opportunities, leaving investors exposed to herd mentality and structural risks.

Spence’s vision for 2025 is a response to these limitations. Active ETFs, he argues, offer a path to differentiated returns through skilled portfolio management, sector rotation, and risk mitigation—tools sorely lacking in passive strategies.

The Case for Active ETFs: Beyond the Benchmark

The appeal of active ETFs lies in their ability to adapt to volatility and outperform benchmarks over time. While historically overshadowed by passive alternatives, their growth has accelerated in recent years. shows that, on average, active ETFs have outperformed their passive peers in 60% of market cycles since 2020, particularly during periods of heightened uncertainty.

Key drivers of this shift include:
1. Investor demand for resilience: With global markets navigating geopolitical tensions, inflationary pressures, and shifting interest rate policies, investors are seeking solutions that can navigate turbulence.
2. Innovation in transparency: Active ETFs now offer daily disclosure of holdings, blending the flexibility of mutual funds with the liquidity of ETFs—a critical step toward overcoming skepticism about “black box” management.
3. Strategic partnerships: JPMorgan’s pledge to collaborate with specialized asset managers signals a broader industry push to leverage niche expertise, from thematic investing to ESG integration.

Challenges and the Road to 2025

Despite their promise, active ETFs face hurdles. Their higher expense ratios— show an average of 0.75% versus 0.15% for passive—make cost-conscious investors hesitant. Additionally, the success of active strategies hinges on consistent outperformance, which is far from guaranteed.

To overcome these barriers, JPMorgan and others are focusing on three pillars:
1. Product diversification: Launching thematic, factor-based, and ESG-focused active ETFs to cater to specific investor objectives.
2. Education and accessibility: Simplifying the narrative around active management to highlight its role in portfolio diversification rather than a direct competitor to passive strategies.
3. Performance accountability: Emphasizing risk-adjusted returns and long-term consistency to build trust.

Conclusion: A New Era in Active Management

The declaration of 2025 as the “Year of Active ETFs” is more than a marketing slogan—it reflects a fundamental recalibration of the investment landscape. With $9 trillion in global ETF assets up for grabs, the success of active ETFs will depend on their ability to deliver consistent, risk-aware returns while maintaining the liquidity and transparency that made passive ETFs a staple.

The data supports this transition: active ETFs have already captured 12% of net new ETF inflows in 2023, up from 5% in 2020, and the pipeline of new launches continues to grow. By 2025, industry projections suggest active ETFs could command $1.5 trillion in assets, a 50% increase from current levels.

Yet, the true test lies in whether active managers can sustain outperformance in an increasingly complex market environment. For investors, the shift toward active ETFs offers a chance to balance cost efficiency with the agility needed to navigate the next economic cycle. As Spence’s vision unfolds, 2025 may indeed mark the dawn of a new era—one where active management regains its place as a cornerstone of prudent investing.