Active ETFs are punching well above their weight in 2026. Despite representing just 12% of total ETF assets, actively managed funds have captured 40% of year-to-date flows, Todd Mathias, head of North America ETF product strategy at Franklin Templeton, told attendees at an April 27 roundtable discussion at the firm’s Manhattan office.
Key Takeaways:
- Active ETFs took 40% of flows despite holding just 12% of assets, showing strong demand for active management.
- Half the S&P 500 underperforms year to date despite sector strength, creating stock-picker opportunities.
- Franklin Templeton projects active ETF assets will reach $4.5 trillion by 2030 and $22 trillion by 2040.
The outsize allocation to active strategies reflects growing investor demand for nimble portfolio management in a market where traditional index-hugging approaches may be falling short, panelists said. With half the S&P 500 underperforming, even as nine of 11 sectors post positive returns, the case for active ETFs has strengthened as concentration risks mount.
Market Dispersion Creates Opening
The data point that caught Katrina Dudley’s attention: 253 stocks in the S&P 500 are underperforming year to date as of April 23. That’s roughly half the index delivering below-average results despite broad sector strength.
“I just think that that is such an interesting pitch for active management,” said Dudley, senior vice president of public market investments at Franklin Templeton, who moderated the discussion.
The firm’s projections for active ETF growth are ambitious. Mathias said Franklin Templeton expects active ETF assets to grow from $0.7 trillion today to $4.5 trillion by 2030 and $22 trillion by 2040, when they would represent a quarter of all ETF assets.
The shift stems from investor recognition that ETF benefits — transparency, tax efficiency, and liquidity — don’t require index tracking, David Mann, head of ETF product and capital markets, explained during the panel. Real-time portfolio adjustments now trump scheduled index rebalances for many investors.
Global ETF flows have reached $600 billion year to date, Mathias noted, with the composition of those flows tilting decisively toward active strategies.
Neutral Stance Amid Tactical Opportunities
Todd Brighton, portfolio manager at Franklin Income Investors, described his multi-asset income strategies as sitting at a 50/50 neutral split between equities and fixed income. The positioning reflects a market where no single asset class appears dislocated.
Brighton said the team doesn’t see either equities or fixed income as particularly dislocated currently, though they remain ready to react as opportunities emerge.
Within equities, financials drew Brighton’s attention. Drivers include capital needs from the AI boom, a potentially reopening IPO pipeline, and increased merger activity. The sector sold off in the first quarter, down almost 10%, despite corporate earnings showing 14% year-over-year bottom-line growth across the S&P 500.
Software presented another area of interest. While AI poses challenges for some companies, Brighton identified well-positioned firms trading 30% to 50% below recent highs. Banks and healthcare companies with strict regulatory environments and customer data ownership likely remain cautious about changing software vendors, he suggested, creating moats for defensible businesses.
Utilities emerged as an unexpected AI beneficiary. No longer the “boring” sector of the past, utilities are now levered to AI infrastructure through massive power demands from data centers, according to the panel.
Digital Innovation on Dual Tracks
Franklin Templeton’s digital strategy operates on two fronts. The firm currently offers five digital asset ETFs covering bitcoin, ethereum, solana, and XRP, plus a dynamic index fund. Mann described this as “dragging” digital assets into the ETF world.
Simultaneously, the firm is investigating how blockchain technology could improve ETF infrastructure. Mann pointed to potential applications including instant settlement, fractional shares, and smart contracts that could make the ETF ecosystem more efficient.
“We have to deal with creation blocks and t plus one settlement and trading,” Mann said. “There’s probably things where, if I squint, instant settlement or fractional shares or smart contracts could make things theoretically more efficient.”
On the AI front, Dudley outlined Franklin Templeton’s deployment strategy, which includes “PM co-pilots,” multi-agent technology, and internal hackathons — all operating under a strict governance framework with legal and compliance partnerships built into development.
The firm recently hosted a “reverse mentor” hackathon pairing junior talent with senior investment leaders to solve AI challenges, Dudley said. The approach reflects a broader principle across Franklin Templeton’s active strategies: meeting investors where they are while continuing to push innovation forward.
For more news, information, and strategy, visit ETF Trends.
Originally published on ETF Trends
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