We believe there are three benefits to Active ETFs: Active management, convenience and tax efficiency.
Exchange Traded Funds (ETFs) surpassed more than $1 trillion in asset flows in 2024, according to Morningstar. Importantly, despite representing just 6% of the ETF market at the start of the year, active ETFs accounted for 26% (or$295 billion) of those flows.
This is not an overnight phenomenon. Active ETFs flows have been climbing at a staggering 39% annual growth rate since 2019.
Why the accelerating interest? We believe there are three benefits to Active ETFs that are driving investor adoption.
Active ETFs flows have been climbing at a staggering 39% annual growth rate since 2019.
Active Management:
Active ETFs offer the potential for higher returns compared to funds that simply track an index. This is because they are actively managed by professional fund managers who make investment decisions based on research and market analysis. Further, investors seem to be increasingly realizing that less efficient asset classes like fixed income, sector-focused, small-cap or emerging markets lend themselves to better returns through active management.
Convenience:
Active ETFs provide intraday trading, no minimum investment requirements, transparency and low costs. Mutual funds trade just once a day at the end of each trading day and are priced at the end of day as well. ETFs, by comparison, trade intraday and are priced at real-time market prices. This makes them accessible and easy to trade for investors of all sizes. Transparent ETFs also disclose their holdings daily. Mutual funds disclose holdings just monthly and quarterly. And active ETFs, on average, have lower expense ratios than mutual funds.
Tax Efficiency:
Active ETFs are structured in a way that allows them to distribute fewer capital gains to shareholders compared to mutual funds, enhancing after-tax returns. ETFs accomplish this through in-kind transactions, where they exchange underlying portfolio holdings for ETF shares without creating a taxable event. In 2023, for instance, only 6% of active ETFs had a capital gains distribution compared to 32% of mutual funds, according to Morningstar.
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Index definitions and important disclosures.
There is no guarantee that any historical trend illustrated/referenced above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. There is no guarantee that any market forecast set forth in this commentary will be realized. The views and opinions in the preceding commentary are as of the date of publication and are subject to change. Diversification does not ensure a profit or guarantee to protect against loss. There is no guarantee that actively managed investments will outperform the broader market.
This material represents an assessment of the market environment at a specific point in time and should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment, and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing. The views and opinions expressed are not necessarily those of any broker/dealer or its affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules or guidelines.
Foreside Fund Services, LLC is the distributor of Cohen & Steers Active ETFs. Cohen & Steers Securities, LLC is the distributor of Cohen & Steers funds. Cohen & Steers Capital Management, Inc, is the advisor. Foreside Fund Services, LLC is not affiliated with Cohen & Steers Securities, LLC or Cohen & Steers Capital Management, Inc.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (888) 123- 4589 or visit our website at https://www.cohenandsteers.com. Read the prospectus or summary prospectus carefully before investing.