The Securities and Exchange Commission (SEC) published two new reports on the growth in active exchange-traded funds (ETFs) and the changes in fees paid by investors when mutual funds and ETFs acquire other funds.
One report is called the Fast-Growing Market of Active ETFs, which examines the general characteristics of active ETFs. Despite representing a relatively small portion of the total ETF managed assets, the number and assets of active ETFs have experienced significant growth in recent years, outpacing the growth rate of passive ETFs. With the rapid expansion of the number of active ETFs, they are now close to the number of passive funds. Active ETFs generally have a lower level of return alignment with the underlying benchmark return, higher portfolio turnover rates, and greater use of derivatives.
The other report is called When Funds Merge: What Happens to Fees? Evidence from Acquiring Mutual Funds and ETFs. This report explores how mergers of mutual funds and ETFs are associated with changes to the fees paid by investors in funds that acquired another fund through a merger, specifically expense ratios, management fees, and Rule 12b-1 fees. The analysis focuses on over 1,800 U.S. mutual fund mergers that occurred between 2011 and 2023. The results suggest that mergers are generally associated with lower fees for investors in acquiring funds, and the size and type of those savings vary by fund type and the structure of the merger.
“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” Joshua White, chief economist and director of the SEC’s Division of Economic and Risk Analysis, said. “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. 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.”
SEC staff also updated the SEC’s webpage to include updated statistics and visualizations on municipal advisors, transfer agents, and security-based swap dealers (SBSDs). The webpage provides statistics to show market trends, pie charts to show distribution across different categories, as well as heat maps to show geographic distributions.
The reports were released by the SEC Division of Economic and Risk Analysis (DERA), which integrates financial economics and rigorous data analytics into the SEC’s core mission.