<div id="readability-page-1"><div><figure></figure>For most of the last fifteen years, the active-versus-passive question had a simple answer: pay less, accept the index, win on average. The data backed it up. Year after year, the SPIVA U.S. Scorecard from S&amp;P Dow Jones Indices showed most active managers losing to their benchmark.In 2026, that simple answer needs a footnote. Active ETFs now make up roughly 80% of new ETF launches this year. They pulled in $459 billion in net new flows in 2025 — about 31% of all ETF flows. Active ETF assets have crossed $1.47 trillion, growing at a 59% compound annual rate over the last three years.The launch surge isn’t a sign that active managers suddenly got better. The most recent SPIVA scorecard, covering 2025 and published in early 2026, found that 79% of actively managed large-cap U.S. equity funds underperformed the S&amp;P 500 last year. Over a ten-year horizon, only 24% of active ETFs have beaten their benchmarks. The structural underperformance pattern is intact.What has changed is the wrapper around active management — and the fees you pay for it. Both are worth understanding before making a portfolio decision.The basic distinctionA passive ETF tracks an index. The portfolio manager’s job is to mirror a published methodology — replicate the S&amp;P 500, the total bond market, a sector index — as cheaply and accurately as possible. There is no view, no security selection, no attempt to outperform. The index dictates the holdings.An active ETF has a portfolio manager making security selection or factor-tilt decisions. The manager may follow a quantitative model, pursue a thematic mandate, or run a discretionary stock-picking strategy. The goal is to beat a benchmark, not to match it.Both wrap the same legal structure — a 1940 Act fund traded on an exchange — and most of the operational differences investors notice (intraday trading, low minimum investment, daily transparency) apply to both equally.The performance gap is realSPIVA tracks active-fund performance against benchmarks year by year and over rolling periods. The 2025 scorecard was unusually rough for active large-cap equity managers: 79% trailed the S&amp;P 500. That is about 14 percentage points worse than 2024, when roughly 65% trailed.Over longer windows, the picture is consistent. Across rolling 10- and 15-year periods, between 70% and 90% of active funds underperform their category benchmarks, depending on asset class. The pattern holds in international equity, mid-cap, small-cap, and most fixed-income categories — though small-cap and emerging-market managers have historically posted slightly better odds than large-cap U.S. equity managers.Take these numbers as a probability, not a verdict on any individual fund. Skill exists, but identifying it in advance is the hard part. The base rate is what matters when deciding how much of a portfolio to allocate to active strategies.The fee gap is real, tooAverage expense ratios tell the story. Active ETFs charge roughly 0.69% on average; passive ETFs charge about 0.10%. A typical actively managed mutual fund still runs 0.50% to 1.00%, while a broad-market index ETF can run as low as 0.03%.The fee gap matters because it compounds. A 0.60-percentage-point cost differential, applied to a $100,000 portfolio over 30 years at the same gross return, costs roughly $200,000 in foregone compounded growth. That is the headwind active management has to overcome before adding any value.The gap is starting to narrow at the active end. Fidelity’s Enhanced ETF suite charges as little as 0.23%, and several other issuers have launched active ETFs in the 25-to-40 basis-point range. For investors who want active management, the cost of getting it has fallen meaningfully.What the active ETF wrapper actually changesThe reason active ETFs are growing is not outperformance. It is the structural advantages the ETF wrapper offers — applied for the first time at scale to active management.Tax efficiency. ETFs use an in-kind creation and redemption mechanism that lets fund managers shed low-cost-basis securities without triggering taxable events for shareholders. Mutual funds redeem in cash, which forces sales and distributions. The result: in 2025, just 9% of active ETFs distributed a capital gain to shareholders. For active mutual funds, the figure was 53%. That is a meaningful difference for any taxable account.Transparency. Most active ETFs disclose holdings daily. Active mutual funds typically disclose quarterly. For investors who want to know what they own and when positions change, visibility is structurally better.Intraday liquidity and lower minimums. ETFs trade throughout the day; mutual funds price once at market close. ETFs can be bought one share at a time; many mutual funds carry minimum investment thresholds.For investors who already prefer active management — for income, factor exposure, or specific manager skill — moving from an active mutual fund to an active ETF gives the same management style with materially better tax treatment. That migration is what the launch numbers and flow numbers largely reflect.How to think about the choiceA few practical questions to work through:Is this a taxable account? If yes, the ETF wrapper matters more. The 9% vs. 53% capital gains distribution gap is enough to favor active ETFs over active mutual funds even after deciding active management is wanted. In a tax-advantaged account, the structural difference is much smaller.Is there a clear reason to pay for active management? Active makes sense when there is a defensible reason — a factor tilt that is hard to get cheaply elsewhere, a manager with a defensible track record, or an asset class where active has historically posted better odds (small-cap, emerging markets, high-yield bonds). Diffuse “the manager will pick winners” reasoning rarely beats the index after fees.What is the all-in cost? Compare expense ratio plus expected turnover-driven trading costs plus tax bracket times distribution yield. The same nominal expense ratio can mean very different things depending on structure and turnover.How much of the portfolio? A common framework: build the core in low-cost broad-market index ETFs, then add active ETFs in narrow slices where the case is strong. Most studies of allocation find that asset-class mix drives returns far more than the active-passive split within each asset class.The 2026 active ETF surge is real, and the tax-efficiency case for using active ETFs in taxable accounts is strong. The case for active over passive in general is harder. The base rate of active underperformance has not changed; what has changed is that active strategies are now available in a structurally better wrapper, sometimes at a much lower fee than was available a few years ago.For investors who already prefer active management, switching from active mutual funds to active ETFs is likely an improvement. For satisfied index investors, the active ETF wave has not changed the underlying odds enough to flip the default answer.This article was generated with the assistance of artificial intelligence and reviewed by ETF.com staff.Investment Risk DisclosureThe information provided on this website is for informational and educational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Nothing on this site should be construed as a recommendation to buy, sell, or hold any security or financial product.General Investment RisksInvesting involves risk, including the possible loss of principal. Past performance is not indicative of future results. The value of investments may fluctuate, and investors may receive back less than they originally invested. 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ETFs may be subject to the following additional risks:Market Risk: The value of an ETF may decline due to broad market fluctuations unrelated to the underlying securities.Liquidity Risk: Some ETFs may have limited trading volume, which could make it difficult to buy or sell shares at a desired price.Tracking Error Risk: An ETF may not perfectly replicate the performance of its benchmark index.Concentration Risk: Sector or thematic ETFs may be concentrated in a particular industry or geography, increasing volatility.Currency Risk: ETFs that invest in international securities may be affected by exchange rate fluctuations.Leverage and Inverse Risk: Leveraged and inverse ETFs are designed for short-term trading and may not be suitable for long-term investors. These products use derivatives and may experience significant losses.No WarrantyWhile efforts are made to ensure the accuracy of information presented, no warranties are made regarding completeness, accuracy, or timeliness. 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The active vs. passive ETF debate is evolving as active ETFs now account for 80% of new launches, attracting $459 billion in net flows in 2025. Despite this surge, 79% of active large-cap U.S. equity funds underperformed the S&P 500 last year. Active ETFs offer structural advantages like tax efficiency, daily transparency, and lower minimum investments compared to mutual funds. However, they still face a significant fee gap, with active ETFs averaging 0.69% in fees versus 0.10% for passive ETFs. Investors are increasingly migrating to active ETFs for better tax treatment and management style.

- The 2026 landscape shows active ETFs now represent 80% of new launches, attracting $459 billion in net flows, despite 79% of actively managed large-cap funds underperforming the S&P 500.  
- Active ETFs offer advantages over traditional mutual funds, such as tax efficiency, daily transparency, and lower minimum investments, although the fundamental underperformance of active strategies remains unchanged.  
- Investors should consider the structural benefits and costs of active ETFs versus mutual funds, especially in taxable accounts, as they can provide improved management with better tax treatment.

Active vs. Passive ETFs: How the 2026 Active Surge Changes the Math