The SEC's Division of Economic and Risk Analysis released comprehensive research showing that active ETFs, while still representing a small portion of total ETF assets, are experiencing explosive growth that outpaces passive ETFs. The reports also found that fund mergers generally result in lower fees for investors in acquiring funds, with savings varying by fund type and merger structure. The agency analyzed over 1,800 U.S. mutual fund mergers that occurred between 2011 and 2023.
The research highlights significant shifts in the ETF landscape, where active ETFs now rival passive funds in number despite their smaller asset base. "With more than 3600 ETFs holding assets exceeding $10 trillion, understanding this market is critical, not just because of its size, but because of its evolving dynamics," said Dr. Joshua T. White, Chief Economist and Director of DERA. The active ETF segment shows distinct characteristics including lower return alignment with benchmarks, higher portfolio turnover rates, and greater derivatives usage.
The fund merger analysis examined changes to expense ratios, management fees, and Rule 12b-1 fees for acquiring funds using data from 2010 to 2023. According to the SEC's findings, mergers are generally associated with lower fees for investors in acquiring funds, though the size and type of savings depend on fund characteristics and merger structure. The research required at least one year of pre-merger observations to ensure accurate baseline comparisons.
The reports are part of DERA's broader effort to provide transparency into evolving market dynamics as the ETF industry continues its rapid expansion. The active ETF segment's growth is particularly noteworthy given that the number of active ETFs now approaches the number of passive funds, reflecting what the SEC described as "a shift toward more actively managed strategies." This trend occurs against the backdrop of the overall ETF market's tremendous growth to over $10 trillion in assets.
"Active ETFs, while still a smaller segment of the market, are growing rapidly and now rival passive funds in number, reflecting a shift toward more actively managed strategies," White said. "At the same time, our research shows that fund mergers can deliver meaningful fee reductions for investors. These trends highlight the importance of ongoing analysis to ensure transparency and resilience in this fast-changing landscape."
The SEC also updated its public statistics and data visualizations webpage to include current information on municipal advisors, transfer agents, and security-based swap dealers. The interactive and downloadable visualizations include time series charts showing market trends, pie charts displaying distribution across categories, and heat maps showing geographic distributions.
DERA's research integrates financial economics and data analytics into the SEC's regulatory mission, conducting detailed economic and statistical analyses to advise on Commission matters and identify marketplace trends and innovations. The division's work helps inform policy decisions as markets evolve and new investment products gain traction among investors.