Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
2025 has been another defining year for the ETF industry. Despite persistent market volatility and uncertainty, investors demonstrated a strong preference for active strategies, driving significant inflows into ETFs. This shift highlights a growing appetite for disciplined active management to navigate complex market environments.
As we look ahead to 2026, we anticipate continued innovation and expansion in the ETF space, offering investors an even broader array of choices and opportunities.
To help our clients and the marketplace navigate this evolving landscape, in the following sections, we’ve identified five key ETF industry themes to watch in 2026. These areas reflect the ongoing growth, innovation, and strategic shifts shaping the ETF industry, and they will be critical in understanding where opportunities and challenges lie in the year ahead.
Active ETFs Gain Traction, Competition Heats Up
Last year was incredible for active ETF growth, far surpassing the expectations of the market. Active ETFs’ inflows neared $400 billion by the end of 2025, well above the nearly $300 billion they added in 2024. Although 89% of ETF assets currently reside in passive funds, the growth of active this year has been noticeable; 36% of flows moved to active funds.
But it’s not just an asset game. Product launches are also taking center stage, and that is likely to continue. In June, the number of active ETFs surpassed passive funds. That gap is only likely to widen, with 85% of new ETF launches this year being in the active space.
As more active ETFs, both standalone funds and share classes of larger products, come to market, fee structures will remain a key focus in 2026. While active strategies typically carry higher costs than passive, these fees can reflect the added value of professional management and research-driven approaches. Investors currently pay an average of 25 basis points more for active ETFs than passive (Bloomberg), and whether this premium persists or narrows as competition grows will be an important trend to watch.
ETFs With New Flavors: Innovation Continues
The ETF landscape continues to evolve rapidly, with a growing number of non-traditional exchange-traded products (ETPs) gaining traction. Since 2022, nearly 2,000 such funds have launched, accounting for roughly 70% of new ETF/ETP introductions, and they attracted nearly $227 billion in inflows in 2025 alone, according to Bloomberg.
These strategies often use derivatives, including outcome-based, single stock, leveraged, quantitative, and option overlay approaches, distinguishing them from traditional active funds that rely on fundamental security selection. While these products can offer valuable tools for downside protection and tactical exposure in volatile markets, their complexity means they are best suited for sophisticated investors, such as institutional clients and experienced wealth managers, who can fully assess their risks and benefits.
One emerging area of potential growth worth noting is the digital asset space, including the tokenization of registered funds. While tokenized ETFs offering spot exposure remain limited, recent launches of tokenized mutual funds suggest a possible avenue for expansion. Issuers are exploring the tokenization of existing ETF lineups to meet demand from investors who prefer digital delivery structures, a trend that may gain momentum in 2026 and beyond.
At TCW, our core focus remains on fundamental research and relative value strategies to generate alpha. That said, we continuously evaluate emerging innovations and evolving market solutions to ensure we are well-positioned to meet our clients’ needs and deliver thoughtful, risk-managed opportunities as the landscape develops.
Multi-Share Class: Progress, But Hurdles Remain
A topic the investment management has been waiting for was the approval of ETF share classes of mutual funds. On November 18, 2025, the SEC finally approved multi-share class ETFs, allowing Dimensional Fund Advisors to launch 13 ETF share classes based on existing mutual funds. Nearly 80 other applicants await regulatory decisions, signaling broader adoption ahead.
Despite this progress, we do not expect an immediate surge in launches. The main hurdle remains platform acceptance. While most sponsors have addressed operational and legal requirements, wealth platforms need time to develop the necessary technology and infrastructure. This process, along with revenue considerations tied to potential fund migration, suggests widespread platform support is unlikely before 2027.
Nonetheless, new share classes will find distribution through alternative channels such as model portfolios, RIAs, pensions, and family offices. However, without major platform backing, growth may be slower.
Successfully managing complex, multi-share class ETFs also requires strong capital markets expertise, dedicated trading and operations teams, and established relationships with exchanges, custody banks and market makers.
From Private to Public
One of the key drivers behind ETF growth is tax efficiency, largely enabled by the in-kind creation and redemption mechanism. While investors still realize gains or losses upon selling ETF shares, the structure allows for deferral rather than immediate taxation.
The rise of 351 exchanges has expanded these tax advantages by enabling investors to transfer appreciated assets into ETFs without triggering immediate tax consequences. These exchanges offer the opportunity to exchange high-tax-basis assets for shares in newly launched ETFs, which can then diversify and reallocate holdings over time without immediate tax implications.
It’s important to note that investors contributing assets to these ETFs will eventually incur taxes upon selling their shares. Nonetheless, this mechanism presents a meaningful growth opportunity as investors seek to diversify appreciated holdings without immediate tax impact.
Choice Still Matters for Portfolio Construction
The SEC’s approval of multi-share class ETFs may prompt some investors to consider wrapper choice when deciding between mutual funds and ETFs. Both structures offer distinct advantages depending on investor needs and fund characteristics.
ETFs provide investors with intraday liquidity, tax efficiency, and transparency, making them well-suited for investors seeking flexibility and cost-effective trading. However, they require underlying securities to be liquid with tight bid-ask spreads to support daily redemptions
Mutual funds, on the other hand, offer operational efficiencies in certain contexts, such as 401(k) plans, by allowing dollar-based purchases and fractional shares. Their structure also permits investment in less liquid securities, which can enhance income, alpha, or yield, as they are not constrained by the need for intraday liquidity.
At TCW, our decisions to launch new funds or convert existing ones carefully take into account these factors, aligning product structure with investor profiles and the nature of the underlying assets.
Scott Dennis is head of ETFs at TCW.
Disclosure
This material is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time, without notice. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. The information contained herein may include preliminary information and/or “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any forward-looking statements or opinions in this document. Any opinions expressed herein are current only as of the time made and are subject to change without notice. Past performance is no guarantee of future results. All investing involves risk including the potential loss of principal. Market volatility may significantly impact the value of your investments. Recent tariff announcements may add to this volatility, creating additional economic uncertainty and potentially affecting the value of certain investments. Tariffs can impact various sectors differently, leading to changes in market dynamics and investment performance. © 2025 TCW
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
Read more articles by Scott Dennis
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
