AI, SpaceX, and Automation Fuel the New Wave of Active ETFs

The exchange-traded fund (ETF) industry has seen a boom in actively managed strategies.

With $15.7 trillion in assets under management, buy-side issuers of ETFs are racing to stand out in a crowded field with more creative but complex strategies. Many of the recent launches gaining traction have been single-stock levered ETFs such as the SpaceX IPO, or thematic ETFs tied to the “AI build out” or memory chips.

At ETP Forum in June, executives from leading ETF issuers discussed the latest trends in active ETFs and where the money is flowing.

Despite having higher fees than passive index tracking ETFs, the industry has tapped into an appetite for actively managed strategies. Overall, the US ETF industry pulled in in a record $1.03 trillion in net flows in the first half of the year, with active ETFs gathering over $403 billion, according to research firm ETFGI.

A combination of retail investors seeking exposures to thematic equity ETFs such as infrastructure tied to AI or semiconductors and financial advisors looking for diversification, tax efficiency and the liquidity of the ETF wrapper, have driven the surge in inflows, said panelists.

“There has been a huge explosion of ETFs such as outcome and buffered ETFs, with some using leverage, and you see more complex ETFs,” said Scott Dennis, Head of ETFs for TCW, a $200 billion asset manager which currently runs $7.23 billion in ETFs.

A regulatory change in 2019 made it easier for issuers to bring qualifying index funds and actively managed strategies to market without obtaining individual exemptive orders from the SEC. The rule requires ETFs to publish their exact portfolio holdings daily.

Buffer ETFs, which use derivatives to protect against losses in the stock market to a certain point, have become popular with financial advisers with retirees as clients, according to panelists. Other ETFs, known as equity premium income funds, provide exposure to stocks in the S&P 500 or the Nasdaq 100, while selling options contracts to generate extra dividend income. 

Big issuers and new entrants have been rolling out thousands of products. About 1,100 ETFs were launched last year, and more than 8 in 10 were active ETFs, reported the Wall Street Journal.

At the end of May, active ETFs hit a record $2.5 trillion in assets, up from $2.3 trillion at the end of April, according to ETFGI. In June, actively managed strategies recorded net inflows of $74 billion, down from $100 billion in May. Year-to-date net inflows of $403 billion, surpassed $217 billion recorded in 2025, said the research firm.

What does an active ETF mean in 2026?

Since many active strategies are measured against beating a benchmark index, there was debate around what differentiates them from passive index-based strategies.

Panelists said that active ETFs can be stock pickers, but they can also be rules-based or systematic.  “Active can open up new opportunities within systematic and are not beholden to the rules of an index,” said an issuer on the panel.

They also offer more concentrated portfolios, with higher turnover and more frequent rebalancing that is not constrained by an index fund’s monthly or quarterly schedule.

Some active strategies are index aware or “benchmark hugging and include factor overlays and quant overlays,” said an issuer.

In general, several issuers said that active strategies should fill a gap in the market, though they conceded that many strategies can look the same. “It should be something that you can’t get from a broad-based index,” said one panelist with a large issuer.

Ben Becker, Head of ETF Distribution at Pictet Asset Management, noted that the firm has six active ETFs, in which it’s a leader in AI enhanced quant equities, global thematic equities and emerging markets. “These are areas where people look for differentiation to core portfolio holdings.”

New Launches: SpaceX and DRAM

Looking at new launches, they can be classified into different buckets – fundamental, thematic, systematic, fixed income and derivative income.

New launches of ETFs have been skewed by leveraged and inverse ETFs in the single stock space, noted a panelist. Todd Sohn, chief ETF strategist at Baird Strategas, wrote in a research note that the US-listed leveraged ETF space is made up of nearly 700 funds across $200 million in AUM.  That includes about 400 levered single stock ETFs with about $40 billion in AUM.

Within days of SpaceX going public on June 12, competing fund firms launched 11 leveraged ETFs tied to the stock, either specifically 2x long or 2x short — inverse ETFs. Leveraged ETFs use derivatives to amplify the daily price movements of the underlying stock.

Conversation turned toward riskier ETFs and the need to educate financial advisors about how the products work given their potential for volatility.

 For example, the fastest growing ETF has been RoundHill Memory ETF, known by the ticker DRAM, which pulled in $1 billion within the first 10 days of trading. DRAM gathered nearly $10 billion in assets within its first 43 days. It provides access to the limited number of companies supplying high-bandwidth memory or DRAM chips, considered essential to the AI build-out. But 73% of its assets are concentrated in only three memory stocks – Samsung Electronics and SK Hynix and Micron Technologies.

ETF Bottlenecks: Market Maker Capacity

But as ETFs contain more complicated derivatives exposures, ETF issuers need the market makers to structure the swaps and derivatives make the newer active ETF products possible. One marker explained that the plumbing behind the scenes is in short supply – pointing to market maker capacity and demand for options clearing.

“The lead market maker is a structural constraint here in the US and options clearing capacity is another bottleneck,” said the panelist.

For example, if an issuer wants to use a swap or obtain international exposure, or if they want a defined income/defined outcome or buffer ETF, they need someone to design the right structure. This may involve multileg transactions and strikes. Among the factors is that there may not be enough lead market markets to go around and issuers need to find banks with options clearing capacity, he said.

Since active strategies may have higher turnover, the market makers need to constantly manage tax efficiency and spreads every day. “It’s not that you just launch an ETF in the US and it’s not going to pay out capital gains. We need to manage for that every day,” said the panelist.

Scaling Active ETFs: Automation in Create/Redeem Process

With the growth of active ETF strategies, Scott Dennis of TCW, said that automation of the creation/ redemption process has increased efficiency and enabled ETF issuers to scale their business.

In 2019, the SEC approved “the ETF rule” that it made it easier for ETFs to bring new products to market. It also gave ETFs the ability to build customized baskets which they use to create and redeem shares.

“The creation redemption [process] has been moving away from cash to a more automated ETF structure,” said Dennis. With in-kind redemptions, authorized participants (APs) can exchange a basket of securities for ETF shares.  Through advances such as portfolio trading, issuers can trade 100 names during the creation/redemption process.

However, the creation/redemption process can be complex and manually intensive without connectivity between the sell-side order management system and data providers.  In 2025, FlexTrade’s sell-side OMS announced a partnership with Ultimus, a provider of ETF data and associated index data to manage the ETF creation and redemption process. With access to the Ultimus data, “FlexOMS users can undertake various ETF workflows, like trading baskets of ETF components, as well as ETF creation and redemption, with minimal manual effort,” according to the announcement.

Dennis said the firm engages daily in primary market transactions with authorized participants who need transparency into the daily changes of the portfolios. In addition, TCW works with the National Securities Clearing Corp. (NSCC) to deliver the components of ETFs, so the market makers can make bids and offers. “They get all the components to market makers by 9:30 am. You need a solid technology platform,” he said.   “We monitor secondary market trading through live, real-time pricing on an intraday basis for all our ETFs and their underlying,” he noted.

In terms of its own line-up, Dennis said that TCW Flexible Income Fund (FLXR) – which allocates across sectors including securitized debt ­- and TCW Energy Transition ETF (PWRD), which invests in companies driving energy transformation — continue to lead its inflows this year.

TCW’s FLXR, which added $1.8 billion in 2025, gained $904 million in flows this year and is currently the firm’s largest ETF with $3.36 billion in AUM. On the equity thematic side, TCW has seen inflows into its artificial intelligence ETF (AIFD), which it converted from a mutual fund into an ETF in 2022.

Looking Ahead

As demand for actively managed ETFs continues to steam ahead, there is no shortage of product ideas whether that is AI or space, or rare earth minerals – there’s an ETF for that. Panelists predicted that active ETFs would continue to pick up their percentage of flows as they are the instrument of choice for retail investors and financial advisors while used by institutions for model portfolios or to transition a portfolio’s exposure.

But one critic questioned the value of certain short-term active strategies since they could perform well for a few weeks or months but typically require market timing.  In fact, not every ETF is a winner. About 35% of ETFs close per year if they are not economically viable.

In the end, it may all come down to consistent returns.  “The real performers that deliver returns over a long period of time will rise to the top,” said a boutique asset manager.