ETFs were once synonymous with passive index investing, but no more. The recent rise of active ETFs has triggered an avalanche of product choices for advisors and investors alike. It’s also created a need for greater due diligence for those sorting through the clutter.

Cetera Investment Management, a San Diego-based registered investment advisor (and subsidiary of Cetera Financial Group), has just released a solution it calls its “Active Exchange Traded Funds (ETF) Research Select List.” Designed to help Cetera-affiliated professionals, the exclusive list contains 50 actively managed ETFs across 26 equity, fixed-income and alternative asset classes.

"We are proud to become one of only a handful of firms offering an active ETF recommended list to help educate our advisors about this growing investment structure," said Chief Investment Officer Gene Goldman.

The overall assets in ETFs have ballooned to almost $9 trillion, as of April 2024, according to Morningstar data. Among this group, 40% are classified as “actively managed.”

“Advisors in general are looking for help in sifting through a growing and often complex array of investment opportunities for their clients," said Shana Orczyk Sissel, founder and chief executive officer at Banríon Capital Management. "As the advisory business shifts more and more to ETF products and the offerings grow, I expect to see this become commonplace across most large aggregators and B-Ds."

With assets in active mutual funds contracting, the active ETF market represents a growth opportunity for asset managers.

“Around two-thirds of all ETFs launched this year are actively managed,” said Douglas Yones, head of exchange-traded products at the New York Stock Exchange. “About $10 billion of net new cash flow has gone directly into active ETFs this year.”

Although active ETFs have skyrocketed in number and assets, they still represent a small share of the active fund market (4%) and overall ETF market (8.5%). Moreover, asset flows into active ETFs have been concentrated in a handful of select firms like Dimensional Fund Advisors and J.P. Morgan Asset Management. Offering active solutions in an ETF wrapper gives asset managers another distribution channel.

Active managers with a reputation for market outperformance are positioning for their place in the ETF business.

Miller Value Funds, a firm with ties to billionaire value investor Bill Miller III, recently added the Miller Value Partners Appreciation ETF (MVPA) and Miller Value Partners Leveraged ETF (MVPL). Under Miller’s guidance, the Legg Mason Capital Management Value Trust after-fee return beat the S&P 500 index for 15 consecutive years from 1991 through 2005.

As the competition among active ETFs heats up, the competition for ETF research platforms catering to RIAs is also heating up. Moreover, careful due diligence by platforms on active ETFs will allow advisors to spend time and resources on other aspects of their business.