Remember when “alternative” was just a catchall for ‘90s rock? Picture the JNCO jeans and Airwalk sneakers, and recall the ubiquity of Pearl Jam on the radio. Those were the days.

Now, “alternatives” have a different meaning for millennials. They may be just as likely to have allocations to bitcoin ETFs as they are to have a Nirvana or Green Day station queued up on Spotify. Two-thirds of the cohort reportedly have investments in alternatives, and many say that ETFs make them better investors, according to data published Monday by State Street Global Advisors. “As the market absorbs tariff impacts and ongoing uncertainty, questions around risk, diversification, and access to liquid, flexible investment tools are front and center,” State Street Chief Business Officer Anna Paglia said in a statement.

When I Come Around to ETFs

Alternatives are a popular investment category across generations, but they stand out with millennials. While 46% of baby boomers and 56% of Gen Xers said they invest in alts, some 69% of millennials do so, according to State Street’s survey, which included 500 investors and 200 financial advisors. Overall, 65% of investors with at least $250,000 said ETFs help improve performance, up from 59% who said so in 2022. And 62% said ETFs make them better investors, up from 54% who agreed with that statement in 2024.

Data from State Street also show:

• Half of advisors manage portfolio risk by allocating to alternative investments.
• Seventy-nine percent said they plan to increase allocations to alternative ETFs over the next year or so.
• Assets in alternative ETFs reached nearly $149 billion by the end of 2024, compared with $28 billion in 2022.

ETFs In Bloom: Advisors are warming up to ETFs as the industry matures. Data from Cerulli Associates show 37% of assets at independent RIAs allocated to ETFs, compared with 29% at hybrid RIAs, 18% at wirehouses, and 16% at independent broker-dealers. “The diversification and innovation in ETFs are largely a win for investors when used thoughtfully, particularly as people seek targeted solutions in complex markets,” said Craig Toberman, partner at Toberman Becker Wealth. But the deluge of single-stock and niche ETFs can be dangerous. “A simple test I often share with clients is: Would this investment still make sense if the markets were closed for five years?” he said.

A positive development in the industry has been strategies reminiscent of hedge funds, such as capital efficient and managed futures ETFs, said Bryan Minogue, founder of Kardinal Financial. “Now ETF investors have excellent options to help build more diversified portfolios for inflation environments where traditional stock and bond investments tend to struggle,” Minogue said. Meanwhile, the decade-long bull market may have encouraged excessive risk-taking with gimmicky products, said Noah Damsky, principal at Marina Wealth Advisors. “Boring is better,” he said. “Investing shouldn’t be exciting.”

If ETFs got any more active, they’d be Jazzercising.

Invesco last week launched three active ETFs across a range of strategies. Those include the Invesco QQQ Hedged Advantage, Comstock Contrarian Equity, and Managed Futures Strategy ETFs. That firm earlier this year added another active product, the Invesco SteelPath MLP & Energy Infrastructure ETF. Those add to numerous other active ETFs that have come to the market this year. “We’ve been particularly excited by the innovation in options-based strategies like buffered and target income ETFs, which serve as powerful tools to help shield investors from market volatility,” Christian Salomone, chief investment officer at Ballast Rock Private Wealth, said in a statement. “During periods of extreme stress, like we saw in April, staying invested is crucial for long-term growth.”

Feel the Burn

Last month, Lazard Asset Management added its first US-domiciled active ETFs: the Equity Megatrends, Japanese Equity, and Next Gen Technologies ETFs. That followed launches earlier this year by PGIM for three buffer ETFs. And last week, that firm filed initial prospectuses for three active corporate bond ETFs. Another company, Vontobel, added its first active ETF in the US this week, the Vontobel International Equity Active ETF. And on Monday, AllianceBernstein filed with the SEC for a forthcoming product, the AB International Growth ETF. Those are a few examples of many.

Data from Morningstar Direct show:

• Of the 233 ETF launches in the first quarter of this year, 204 were actively managed products.
• 63 were nontraditional equity, 20 were US equity ETFs, 12 were international equity, nine were sector equity.
• 26 were taxable bond ETFs, while seven were muni bonds, and two were money markets.
• 10 ETFs were alternatives, while 50 were miscellaneous — a category that included thematic, single-stock, and leveraged products.
• Five were allocation ETFs.

How Active, Really? Some of the new products use so-called “smart beta” or “rules based” approaches, which incorporate an element of active management to portfolios otherwise based on indexes. Such funds can have the benefit of lower expenses, as they tend to have fees somewhere between purely passive and active peers.

“Let’s be real: Broad, low-cost ETFs have done more to level the playing field for investors than almost any other innovation in modern finance. They’ve lowered costs, increased transparency, and made true diversification achievable without complexity,” said Mark Stancato, founder and lead advisor at VIP Wealth Advisors. “I’m also a fan of innovation with purpose – buffered ETFs, tax-aware strategies, and model portfolios that reduce behavioral risk and decision fatigue. These tools help investors stay invested, which is 90% of the battle.”

Ironically, Goldman Sachs’ ETF Accelerator is slowing down.

Just two years after its debut, Goldman Sachs is winding down its ETF Accelerator — a platform that helps institutional clients and asset managers launch, list, and manage ETFs — and transferring service responsibilities of trusts that house roughly $5 billion worth of funds to Tidal Financial Group. In December, media outlets reported that Goldman was potentially seeking a sale of the platform, which is separate from its ETF business.

“We have spent the past few months working with the independent trust to determine the best path forward for our ETF Accelerator business and collectively decided that moving the platform to Tidal was the best long-term solution for our clients and the continued success of their funds,” said Nick Carcaterra, a Goldman Sachs spokesperson.

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