Investment Insights
, 11 May 2026

Active ETFs: Separating Myth from Reality

Marketing Communication. Capital at risk. For Professional Investors Only. Please ensure you have read the Prospectus and the KID in full before making any final investment decisions.

Portfolio Manager Stephen Lynch and Investment Associate Guido Lorenzetti address some of the most common questions we receive from investors regarding the myths, misconceptions, and realities surrounding active ETFs.

Myth 01

Active ETFs Are Too Expensive

Common Assumption

Active management is often associated with significantly higher fees that can diminish long-term returns, leading many investors to view active ETFs as less attractive than lower-cost passive index funds. As a result, active ETFs are frequently judged on headline costs alone, without considering the broader value proposition they may offer.

The Truth

In many cases, active ETFs offer significantly lower expense ratios than comparable actively managed mutual funds, while still providing investors with access to professional active portfolio management. Compared to passive ETFs, however, the value proposition extends beyond fees alone. Investing is not just about maximizing raw returns it’s about maximizing risk-adjusted returns. Skilled active managers can reduce volatility and limit drawdowns by rotating out of overvalued sectors, avoiding fundamentally weak companies, or increasing cash exposure during periods of market stress. Passive ETFs, by design, must continue holding every stock in the index including the weakest performers regardless of market conditions. In bear markets, that distinction can become especially significant. Investors in active ETFs are also paying for the potential to generate alpha, not simply replicate beta. Passive ETFs are designed to match market performance minus a minimal fee, while active ETFs seek to outperform the broader market. If an active manager consistently delivers even modest excess returns of 1–2% annually, the higher expense ratio is often more than justified on a net-of-fees basis.

Our Perspective

At Investlinx, we maintain a simple and transparent fee structure across our ETF range. All of our funds carry the same total expense ratio of 0.85%, unlike much of the broader investment management industry where equity strategies often command materially higher fees than balanced or flexible mandates. We also do not charge any entry or exit fees, allowing investors to allocate or redeem capital without incurring additional transaction-related costs. In addition, our funds do not apply performance fees. While performance fee structures can increase costs during periods of strong returns, investors still bear the full downside during weaker market environments. We believe avoiding performance fees creates stronger alignment with investors and supports a more consistent, transparent investment experience.

Myth 02

Active Managers Are Unwilling to Disclose Their Holdings

Common Assumption

Many investors believe that active managers seeking to protect proprietary investment insights cannot provide full daily portfolio disclosure. As a result, active ETFs are often perceived as lacking transparency, making them appear less suitable for institutional or professionally managed portfolios.

The Truth

Most active ETFs operate with full daily portfolio disclosure, as the majority of investment strategies including fixed income, large-cap equities, factor-based investing, and multi-asset portfolios do not rely on short-term information advantages that are compromised by daily transparency. As a result, transparency is not a structural limitation of active ETFs, but rather a strategic design choice. Portfolio managers can determine the disclosure framework most appropriate for their investment approach while still benefiting from the efficiency, liquidity, and flexibility offered by the ETF structure.

Our Perspective

At Investlinx, transparency remains a core component of our investment philosophy. The holdings of both our Capital Appreciation UCITS ETF and Balanced Income UCITS ETF are published daily and are freely accessible to investors through our website, providing full visibility into portfolio positioning and underlying exposures.

Myth 03

A Small Active ETF With Low Daily Volume Is a Liquidity Trap

Common Assumption

Compared with large passive ETFs or established mutual funds managing substantial assets, newly launched active ETFs are often perceived as less liquid and more difficult to trade. Many investors assume that lower daily trading volumes could make exiting positions more challenging, particularly during periods of market stress when liquidity becomes increasingly important.

The Truth

Consider two vehicles holding broadly the same basket of S&P 500 large-cap equities: a $40bn passive ETF and a $400m active ETF. In a stress scenario, both can generally be liquidated with comparable efficiency because liquidity is primarily driven by the underlying securities rather than the size or trading volume of the ETF wrapper itself. The key metric is therefore not the ETF’s average daily trading volume, but the aggregate liquidity of the underlying portfolio holdings.

Our Perspective

Our portfolios are primarily invested in a combination of large-cap equities and highly liquid fixed income securities, both of which offer deep and well-established market liquidity, enabling efficient portfolio execution under normal and stressed market conditions. In addition, we maintain relationships with multiple Authorised Participants, and our appointed market maker provides continuous daily liquidity across our products on both the Italian and German exchanges, ensuring robust secondary market trading and reliable investor access.

Myth 04

Active ETFs Are a Niche Product for Specialist Investors

Common Assumption

Active ETFs are often perceived as niche or complex investment vehicles, primarily suited to sophisticated investors implementing specialised or thematic strategies. As a result, they are sometimes viewed as peripheral rather than integral tools within mainstream portfolio construction.

The Truth

Active ETFs now span the full breadth of major asset classes, including global equities, investment-grade and high-yield fixed income, multi-asset strategies, sector and thematic exposures, as well as alternative investments. This expanding range of solutions has positioned active ETFs as highly relevant across the entire portfolio spectrum, from core bond allocations to satellite growth strategies. According to industry research, 97% of global ETF investors surveyed by BBH plan to increase their allocation to active ETFs over the next 12 months, with 36% of US investors indicating plans to raise active ETF exposure by more than 25%.^¹

Our Perspective

We continue to believe that our ETFs provide a compelling investment proposition, whether utilised as standalone solutions or as integrated components within a broader portfolio construction framework. The active ETF landscape is evolving rapidly, and we remain committed to identifying and developing new strategies that can effectively leverage the benefits of the active ETF structure.

Myth 05

Active ETFs Can’t Beat the Market So Why Pay for Alpha?

Common Assumption

In highly efficient markets, information is rapidly reflected in asset prices, limiting the ability of active managers to consistently generate excess returns after fees. Historical data showing periods of underperformance among active mutual funds has reinforced the perception that active strategies are inherently difficult to justify on a cost-adjusted basis, leading some investors to view active ETFs as an added layer of risk rather than opportunity.

The Truth

While headline figures for active mutual funds often appear to show underperformance versus benchmarks, these averages can obscure significant dispersion in outcomes across managers. Top-quartile active managers have consistently demonstrated the ability to outperform over time, and many of these same managers are increasingly adopting the active ETF structure to enhance access and distribution. The case for active management is particularly compelling in areas where traditional index construction is less efficient including fixed income, emerging markets, small-cap equities, and thematic strategies. Active fixed-income ETFs accounted for 38% of total fixed-income ETF inflows in 2025.^²

Our Perspective

Active ETFs should not be viewed solely through the lens of benchmark outperformance. They also play a range of functional roles within portfolios, including risk management, income optimisation, factor exposure implementation, and downside mitigation through more defensive or buffered strategies.

Conclusion

The rapid growth of active ETFs reflects a broader evolution in how investors access professional portfolio management: with greater transparency, flexibility, liquidity, and cost efficiency. Many of the long-standing criticisms associated with traditional active management whether related to fees, opacity, liquidity, or accessibility are increasingly less reflective of the modern active ETF landscape.

Today’s active ETF structure combines the benefits of active portfolio management with the operational efficiency of the ETF wrapper. Investors can access actively managed strategies with transparent daily holdings, institutional-grade liquidity, competitive pricing, and without many of the structural limitations commonly associated with traditional mutual funds.

At Investlinx, we believe active ETFs represent an important evolution in portfolio construction. Our approach is designed to align investor interests through transparent pricing, daily portfolio disclosure, liquid underlying holdings, and disciplined active management focused on long-term capital growth and income generation. As adoption continues to accelerate globally across both institutional and retail investors, active ETFs are increasingly transitioning from niche allocations to core portfolio holdings.

“The question is no longer whether active ETFs have a place in portfolios, but how they can be most effectively used to support long-term investment objectives.”

Stephen Lynch, Portfolio Manager, Investlinx

¹ Brown Brothers Harriman (BBH), ‘2025 Global ETF Investor Survey: Ascending to New Heights’ — bbh.com

² BlackRock / Bloomberg Finance L.P., ‘2025 ETF & ETP Market Trends: Flow and Tell Year in Review’ (data as of 12/3/2025) — ishares.com

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