By Ian Salisbury
Active exchange-traded funds have turned into a huge hit with investors. If you still think they're a peripheral product, think again.
Active ETFs have been around for almost 20 years, but for much of that time they were deep in the shadow of the original, index-tracking ETFs. No more. Today active ETFs hold more than $1 trillion worth of assets -- and while that's around just 10% of the assets of overall ETF assets, actively-managed funds have grabbed roughly a third of dollars flowing into ETFs this year, according to a Citi Research report published Wednesday.
Despite going mainstream, many of the most popular active ETFs are still funds that follow somewhat niche strategies. If the fund industry's equivalent to a leading man is a growth fund comprised of stocks with large market capitalizations, an active ETF would be a character actor with a raspy voice.
Citi Research broke the active ETF universe into several categories, including those that use options to deliver income or smooth returns; others that employ stock market tilts to emphasize certain qualities, such as size or value; and bond funds, where active managers have always had somewhat of an advantage.
Considering an active ETF? Here are some of the top funds Barron's identified.
JPMorgan Equity Premium ETF
This $41 billion fund, the largest active ETF by assets, owes its appeal in large part to a 7% yield. The ETF achieves its hefty payout by owning large caps stocks and writing covered call options against the S&P 500.
This strategy means the fund's gains may be capped in a strong bull market, since call options end up being exercised when stocks rise sharply. At the same time, premiums received from selling calls generate income many investors crave -- and can cushion some losses in a downturn.
This year the strategy has been iffy: The fund has posted a total return of just 5.4%, compared to the S&P 500's nearly 16% gain this year. But that's part of the trade off investors accept.
Dimensional US Core Equity 2 ETF
The second-largest ETF by assets began its life as a conventional mutual fund before converting to an ETF in 2021. The fund aims to deliver market-beating returns by tilting its portfolio toward smaller stocks with low valuations and attractive profits, according to Morningstar.
Lately, that's meant overweighting sectors, such as energy and industrials, and underweighting tech, a move that's hurt performance in recent years. Still, given all the worries over an impending "AI bubble, " it's a bet that could start to pay off.
Fidelity Total Bond
This $21 billion fund is the largest broad-based active bond ETF. Launched in 2014, its mandate calls for investing 80% in investment-grade bonds, and up to 20% in junk bonds.
The formula has worked. Over the past decade, the ETF has returned 2.9% a year on average, compared to just 1.8% for the iShares Core U.S. Aggregate Bond ETF, a popular index fund whose widely-followed benchmark excludes high-yield bonds.
In other words, active funds are starting to win a place in investors' portfolios, not necessarily by competing directly with core holdings like S&P 500 index funds, but by filling gaps and offering new alternative approaches.
"This is more than performance-based fund selection. It is opening a broader array of tools," wrote Citi Research analyst Drew Pettit.
Write to Ian Salisbury at ian.salisbury@barrons.com
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October 11, 2025 02:00 ET (06:00 GMT)
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