Active ETF Growth and Strategic Differentiation in a Competitive Landscape: How Touchstone Investments is Leveraging Active Management and Innovation to Capture Market Share

In the rapidly evolving ETF industry, differentiation is no longer optional—it's a necessity. As passive strategies dominate headlines and fee compression intensifies, firms like Touchstone Investments are redefining the active ETF space through a blend of strategic leadership, product innovation, and disciplined execution. With a focus on global diversification, specialized market exposure, and active management, Touchstone has positioned itself as a formidable player in a crowded field.

Active Management as a Core Philosophy

Touchstone's Distinctively Active® approach is rooted in the belief that active strategies can outperform passive benchmarks by adapting to market shifts and exploiting inefficiencies. This philosophy is evident in its 2025 product launches, such as the Touchstone International Equity ETF (TLCI) and the Touchstone Sands Capital Emerging Markets ex-China Growth ETF (TEMX).

TLCI, sub-advised by The London Company, targets large-cap non-U.S. equities using a high-conviction, quality-value strategy. By focusing on global leaders, the fund aims to capitalize on undervalued international opportunities while mitigating risks from volatile regional markets. Similarly, TEMX, managed by Sands Capital, narrows its scope to emerging and frontier markets excluding China and Hong Kong—a deliberate move to avoid overexposure to a single economy while targeting high-growth regions like Southeast Asia and Latin America.

These strategies reflect Touchstone's ability to identify niche markets and pair them with sub-advisers who specialize in those areas. As of June 2025, four of Touchstone's active ETFs have reached three-year anniversaries, including the Touchstone Dividend Select ETF (DVND) and Touchstone Ultra Short Income ETF (TUSI), both of which have demonstrated resilience through active income-generation tactics.

Strategic Leadership and Market Expansion

Touchstone's growth isn't just product-driven—it's fueled by a leadership team that prioritizes RIA partnerships and institutional distribution. The promotion of Ben Alge to President and the addition of seasoned professionals like Mike Day and James Kissane have strengthened the firm's ability to scale. Day's experience in institutional business development and Kissane's expertise in RIA relationships have already translated into measurable success: Touchstone's Practice Management Consulting Program generated $1.25 billion in sales in 2024, with ETF sales surpassing $250 million by mid-2025.

This leadership expansion underscores Touchstone's commitment to building long-term relationships with financial advisors. By offering tools like advanced impact-tracking methodologies and tailored practice management resources, the firm empowers advisors to integrate active ETFs into client portfolios effectively.

Innovation Through Sub-Adviser Collaboration

A key differentiator for Touchstone is its strategic use of sub-advisers. By partnering with firms like Sands Capital and The London Company, Touchstone leverages specialized expertise without diluting its active management ethos. For instance, the Touchstone Sands Capital US Select Growth ETF (TSEL) combines Sands Capital's growth stock-picking prowess with Touchstone's distribution network, creating a product that appeals to investors seeking U.S. growth exposure with active risk management.

This collaborative model also allows Touchstone to test and refine strategies quickly. The firm's recent filing for ETF share-class exemptive relief, for example, signals a willingness to innovate around investor needs, such as reducing costs or enhancing liquidity.

Data-Driven Insights and Investment Implications

To assess the effectiveness of Touchstone's active strategies, consider the performance of its flagship ETFs. The Touchstone Ultra Short Income ETF (TUSI), with a 30-day SEC yield of 4.43% as of June 30, 2025, has outpaced many short-duration bond funds in a rising-rate environment. Similarly, the Touchstone Strategic Income ETF (SIO), with a yield of 5.00%, has demonstrated its ability to generate income while managing credit risk.

For investors, these results highlight the value of active management in volatile markets. While passive ETFs offer transparency and low fees, active strategies like those employed by Touchstone can adapt to macroeconomic shifts—such as inflation spikes or geopolitical tensions—that disrupt traditional benchmarks.

The Road Ahead

Touchstone's 2025 momentum positions it to capture a larger share of the active ETF market, particularly among advisors seeking specialized exposure to international and emerging markets. However, the firm's success hinges on maintaining its focus on innovation and execution. As the ETF landscape becomes increasingly competitive, Touchstone must continue to refine its sub-adviser partnerships, expand its product suite, and demonstrate consistent performance.

For investors, the takeaway is clear: Active ETFs like those offered by Touchstone provide a compelling alternative to passive strategies in a world where market dynamics are constantly shifting. By prioritizing strategic differentiation, Touchstone isn't just capturing market share—it's redefining what active ETFs can achieve.

Investment Advice: Consider allocating a portion of your portfolio to Touchstone's active ETFs, particularly if you seek exposure to international equities or emerging markets. These funds are well-suited for investors who value active risk management and specialized strategies in volatile environments. Always align these allocations with your broader investment goals and consult a financial advisor to ensure they fit your risk profile.