Active ETFs Gain Market Share, Grow in Number

Why It Matters

The trend signals a structural migration from traditional mutual funds to ETF wrappers, reshaping how investors access active muni management and influencing fee and distribution dynamics across the fixed‑income space.

Key Takeaways

• Active muni ETFs now outnumber passive ones 110 to 56
• Active ETF assets $61.5B, still only 30% of muni ETF market
• ETF holdings grew 33.8% YoY in 2025, outpacing mutual funds
• Advisors favor ETFs for daily pricing, lower taxes, and liquidity

Pulse Analysis

The surge in active municipal bond ETFs reflects a broader industry pivot toward more flexible, tax‑efficient vehicles. Morningstar data shows that active offerings have outpaced passive launches every year since 2020, culminating in 23 new active funds last year. While passive ETFs still dominate assets under management, the 30‑percent share held by active products underscores investors’ appetite for tactical credit selection within an ETF structure, a blend previously limited to mutual funds.

Performance and operational advantages are driving the shift. Active muni ETFs often post tighter bid‑ask spreads than cash bond trades, reducing transaction costs for advisors. Their daily pricing eliminates the timing risk inherent in mutual‑fund pricing, while the absence of 12b‑1 fees lowers expense ratios. These attributes, combined with the ability to embed active management in model portfolios, have accelerated inflows, with ETF‑based muni holdings rising 33.8% year‑over‑year in 2025, dwarfing the modest 4.4% growth in mutual‑fund holdings.

Looking ahead, the pace of new active ETF launches may plateau as most fund families have already entered the space, but the underlying demand is unlikely to wane. J.P. Morgan expects continued flow into active muni ETFs, even if product innovation slows. This sustained interest could pressure traditional mutual‑fund providers to enhance liquidity, pricing transparency, and fee structures, further cementing ETFs as the preferred conduit for municipal bond exposure in a modern advisory landscape.