Active ETF Research Reveals Transatlantic Market Is Splitting in Two: Broadridge

Why It Matters

The divergence forces investors to reassess performance expectations and fee justification, while managers must design region‑specific strategies to succeed.

Key Takeaways

• US active ETFs have higher tracking error
• US fees 70‑90 bps, Europe 20‑40 bps
• Europe favors systematic, low‑cost strategies
• US tax advantages shape product design
• Cross‑border launches face regulatory mismatches

Pulse Analysis

The active‑ETF sector has entered a rapid expansion phase, with assets approaching $1.8 trillion and annual inflows exceeding 50 percent. This growth, however, masks a fundamental bifurcation: U.S. products are positioned as high‑conviction, fundamentally driven vehicles, while European offerings lean toward algorithmic, low‑cost approaches. The disparity is evident in performance metrics, cost structures, and investor demand, creating two distinct market ecosystems under the same banner.

A core driver of the split is tracking error, the statistical deviation from a benchmark. Broadridge finds U.S. active ETFs generate roughly two percentage points more tracking error than their European counterparts, reflecting a willingness to pursue more aggressive bets. Correspondingly, U.S. managers charge 70‑90 basis points, double or triple the 20‑40 basis points typical in Europe. Tax incentives unique to U.S. ETFs, the stringent UCITS regime in Europe, and divergent disclosure rules—98 % of U.S. active ETFs hide daily holdings—further reinforce the divergence.

For investors, the takeaway is clear: “active” no longer guarantees comparable risk‑adjusted returns across regions. Asset managers must tailor product design to local regulatory constraints and investor expectations, or risk mis‑pricing and underperformance. Meanwhile, the split opens opportunities for arbitrage and cross‑border innovation, provided firms can navigate tax, transparency, and compliance hurdles. Understanding these nuances is essential for allocating capital efficiently in the evolving active‑ETF landscape.