Actively managed exchange-traded funds (ETFs) are growing in popularity. 2025 has already seen a record number of ETFs launched, with over 2,000 active ETFs now on the market. As of April 25, active ETFs had trading volume inflows of $132bn in investments, leading to explosive growth in their assets under management (AUM).
Active ETFs can offer several unique advantages for retail investors compared to their passive ETF counterparts. But there’s no one-size-fits-all answer to finding the best one out there. The best active ETF for you depends on your investment objective, risk tolerance, time horizon, and personal preferences. Are you looking for growth? Income? ESG exposure? It’s not about chasing another investor's winners, but finding a fund that fits your investment strategy.
Active vs. Passive ETFs
Let's start with the basics. An ETF is an 'exchange-traded fund'. It's traded on a stock exchange, so it can be bought and sold throughout the trading day. This is just one way ETFs differ from mutual funds.
ETFs are essentially a basket of individual stocks. Because they can provide broad diversification with just one investment, they're often a popular choice among UK retail investors. Many of the most popular ETFs track an index, like the S&P 500, which is made up of the 500 largest companies on US stock markets.
There are two types of ETFs: active and passive.
Here’s a quick comparison:
| Feature | \nActive ETF | \nPassive ETF | \n
|---|---|---|
| Management | \nActively managed by fund managers | \nFollows a specific index | \n
| Goal | \nOutperform the benchmark | \nMatch benchmark performance | \n
| Fees | \nHigher (due to active management) | \nLower | \n
| Flexibility | \nCan adjust holdings as markets shift | \nHoldings change only if index changes | \n
| Transparency | \nMay disclose holdings less frequently | \nTypically discloses holdings daily | \n
| Dividends | \nCan be distributing or accumulating | \nCan be distributing or accumulating | \n
Why are Active ETFs becoming more popular?
Active ETFs are rising in the ranks. With more of them on offer, they're increasingly filling gaps in the market that passive ETFs struggle to cover. Other drivers behind their rise include:
- Flexibility: Because these are active funds, managers can adjust portfolios in real time, allowing them to navigate international markets with greater adaptability.
- Investor appetite: Investors may have investment objectives that can't be met with passive ETFs alone
- International investments: Active ETFs can provide strategic exposure to global markets under reasonable control of experienced fund managers
- Currency management benefits: Active ETFs can help investors manage foreign currency exposure more effectively
What are some examples of Active ETFs?
Here are some of the active ETFs currently available on your Freetrade app. Please note that this is not investment advice. Rather, it’s a sample of the 34 active ETFs we offer across different geographies, industries, and strategies.
| Name | \nTicker | \nExchange | \nCurrency | \nObjective | \nDividend Type | \n
|---|---|---|---|---|---|
| iShares Asia ex Japan Enhanced Active - UCITS ETF | \n£AXEE | \nLSE | \nGBP | \nAims to outperform the MSCI AC Asia ex-Japan index. | \nAccumulating | \n
| JPM Climate Change Solutions Active - UCITS ETF | \n£T3PM | \nLSE | \nGBP | \nAims to achieve a return through investing in companies aligned with climate change transition themes. | \nAccumulating | \n
| JPMorgan Nasdaq Equity Premium Income Active UCITS ETF USD Distributing | \n£JEQP | \nLSE | \nGBP | \nInvesting in US companies, seeking to generate a higher return than the NASDAQ index. | \nDistributing | \n
| Eurozone Equity ESG UCITS ETF | \n€JREZ | \nLSE | \nEUR | \nInvesting in Eurozone equities screened for ESG factors, seeking to generate a higher return than the MSCI EMU index. | \nAccumulating | \n
| Global EM Enhanced ESG UCITS ETF | \n$JREM | \nLSE | \nUSD | \nTargets emerging markets stocks with an ESG tilt, aiming to generate a higher return than the MSCI EM index. | \nAccumulating | \n
The eagle-eyed among us might notice that most of these ETFs are accumulating. That means dividends earned by the companies they’re invested in will be reinvested to help grow the fund value. This can help boost the power of compounding over the long term.
How to invest in Active ETFs
Investing in an active ETF is the same as investing in any other ETF, stock, trust, or bond.
Here’s how to get started:
- Choose which active ETF you’d like to invest in.
- Find a broker or stock trading app that offers them.
- Open a brokerage account with that company.
- Deposit funds into your account.
- Use the funds to buy the ETF(s) that you want to invest in.
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