Active ETF Due Diligence: A Combination of Art and Science

Actively managed ETFs have moved from a niche product to a major force in the US market, offering investors active management within the familiar ETF wrapper. They can add value through alpha-seeking strategies, risk control, and efficient access to harder-to-reach markets, while also supporting tactical use cases and potentially improving tax efficiency. The opportunity is broad, but so is the due diligence burden: investors need to assess both the manager’s philosophy and process as well as ETF-specific factors like liquidity, bid-ask spreads, premiums or discounts to NAV, and issuer quality.

Track record analysis also needs more nuance than it did for passive funds or traditional mutual funds. Newer ETFs may still be compelling if they draw on related strategies, shared teams, or converted fund histories that help establish credibility. As the category expands quickly and AI tools begin to support research workflows, careful screening will matter more than ever for identifying strong active ETFs without overlooking innovative new solutions.