Active Strategies Are Coming for Model Portfolios

Passive ETFs have been surpassed.

Active ETFs are the No. 1 strategy asset managers plan to add to their model portfolios within the next year and a half, per a recent Morningstar report. Active ETFs also had more than $165 billion in net inflows through May, and they recently outnumbered passive funds for the first time ever, according to Bloomberg Intelligence data, with more than 500 strategies launched last year alone.

The data reflect a broader strategic shift toward actively managed funds, which are rapidly gaining popularity and expected to reach $4 trillion in assets under management by 2030, according to BlackRock. Still, active ETFs make up just 10% of all industry assets, and not all of the newly launched funds will survive, experts said.

“There’s not a lot of silver bullets,” said Gavin Filmore, an executive at Tidal Financial Group, which manages upwards of 80% of its assets in active strategies. “There’s no doubt the ETF industry is super competitive; you have juggernauts eating up a lot of the asset flow. But you do have people that break through.”

America’s Next Top Model

With the differentiation and lower fees that active ETFs offer, it comes as no surprise that most model portfolios launched so far in 2025 feature them over active mutual funds. When it comes to crafting portfolios, both their tax advantages and innovation are reasons to include active ETFs, said Jen Wing, CIO of GeoWealth. “Some things you’re seeing are Bitcoin ETFs, more niche offerings that can compliment the active parts of portfolios, buffered strategies,” Wing said. “You’re seeing this shift in the ETF space where active ETFs are becoming one of the leading vehicles for product innovation.”

Financial professionals are picking up on the active ETF frenzy:

• 44% of model portfolios included at least one active ETF as of March, with the average allocation to active ETFs in those models coming in at 33%, per the Morningstar report.
• The average weight allocated to active ETFs has risen over the past few years from 12% in 2021 to nearly 20% in Q1 2024, according to a recent BlackRock report.

A Little Leverage. Global ETF issuer GraniteShares also recently joined the active ETF fray, submitting a request to the SEC on Wednesday to launch and rename several YieldBoost ETFs, which optimize yield from options strategies linked to investments like Tesla or the Nasdaq. The move reflects the increased uptake of leveraged ETFs — which saw inflows of $10.95 billion in April, surpassing a five-year high.

“This is a way of unlocking yields in high-flying tech names that are not typically known for generating income, like Nvidia,” said Matt Lamb, a GraniteShares portfolio consultant. “So it’s not a surprise to see more and more demand for these types of products.”