Active ETFs Push Advisors to Tighten Due Diligence

Cerulli Associates reported that issuers launched 953 active ETFs in 2025, representing 84% of new ETF launches that year. The research found that 92% of ETF closures in 2025 involved funds with less than $50 million in assets.

The 2025 active ETF total exceeded the 797 ETFs launched across the market in 2021 and more than tripled the 308 active strategies introduced that year. Issuers surveyed by Cerulli signaled continued product development: 83% planned to launch at least one active ETF in 2026, 87% planned transparent active ETFs and 39% aimed to introduce six or more transparent active funds.

Fund flows reflected the shift toward active ETFs. Active ETFs attracted $153.9 billion in the first quarter of 2026. Over the same period, active mutual funds experienced outflows totaling $108.7 billion.

Closures concentrated among small, recent funds. Since 2021, more than 85% of ETF closures involved products with less than $50 million in assets, and that share rose to 92% in 2025. The average lifespan of closed ETFs shortened to just over three years in 2025, down from four to five years in 2021–2024.

Certain strategy categories accounted for a large share of subscale funds. Defined outcome, leveraged and option income strategies together made up nearly one-third of ETFs with under $50 million in assets. Brand concentration within categories was pronounced: by the end of 2025 Innovator and First Trust together held 86% of assets in the defined outcome segment.

Professional model use of ETFs is rising. Third-party model strategists allocated an asset-weighted 95.2% of their portfolios to ETFs, while asset manager model portfolios used ETFs for an average 45.5% of assets. More than 90% of asset manager model providers offered at least one open-architecture option, according to the report.

Institutional adoption remained smaller but showed growth. Institutional channels held about 15% of the $13.4 trillion in U.S. ETF assets, and 39% of institutional asset owners planned to increase their ETF exposure over the next two years. Examples cited in the report include CalPERS seeding the $2.2 billion JPMorgan Active High Yield ETF, the State Street Blackstone Senior Loan ETF holding nearly $1.2 billion in institutional assets, and the Texas Permanent School Fund placing $742 million into the Eaton Vance Floating Rate ETF.

Issuers reported limited planned closures for 2026: 94% said they intended to close two or fewer transparent active ETFs, and all respondents expected to close two or fewer passive cap-weighted funds.

Kevin Lyons, senior analyst at Cerulli Associates, described the ETF ecosystem as ‘strong’ and noted that while closures could increase with more new products, they were unlikely to derail the broader ETF industry. The report advises advisors to review strategy specifics, liquidity, issuer capacity and concentration risk before adding new ETFs to client accounts or model portfolios.