Active managers see $16B inflows after mutual fund to ETF conversions

For years, active fund managers watched money walk out the door. Passive index funds were cheaper, simpler, and increasingly hard to argue against. But a growing number of active managers have found a surprisingly effective countermove: just change the wrapper.

The mutual fund-to-ETF conversion trend has accelerated dramatically, with over 200 funds making the switch since 2021. Those converted funds collectively held more than $260 billion in assets at the time of conversion, and the results have been striking. Funds that were bleeding an average of $150 million in net outflows over two years before conversion flipped to average inflows of roughly $500 million over the same period after becoming ETFs.

The numbers behind the ETF advantage

The scale of the reversal is hard to overstate. Approximately 71% of post-conversion ETFs have reported positive net flows, pulling in around $120 billion in total inflows against just $20 billion in outflows. The median inflow per converted fund sits at $125 million, with only 29% of funds continuing to face outflows after the switch.

Among firms that converted four or more funds, 12 out of 16 saw significant aggregate inflows post-conversion. Dimensional Fund Advisors and JPMorgan Asset Management have been among the most notable beneficiaries of this trend.

The pace is accelerating, too. In 2025 alone, a record 60 conversions took place across 31 firms.

Perhaps the most counterintuitive finding: even underperforming funds benefited. Strategies that lagged their benchmarks attracted monthly inflows of around 1.3% of assets after converting to the ETF structure.

Why the wrapper matters more than the strategy

Tax efficiency is a big one. ETFs use an in-kind creation and redemption process that generally allows them to avoid distributing capital gains to shareholders. Mutual funds, by contrast, can hit investors with taxable distributions even in years when the fund loses money.

Then there is intraday trading. Mutual funds price once a day, at market close. ETFs trade on exchanges throughout the session, giving investors more control over their entry and exit points.

The transparency angle cuts both ways. Traditional ETFs disclose holdings daily, which some active managers resisted for fear of front-running. But the SEC’s approval of semi-transparent and non-transparent ETF structures in recent years has given active managers more comfort that their strategies will not be easily copied.

A structural shift in asset management

Active ETFs now represent about 12% of the roughly $15 trillion US ETF market. That is up from just 4% in 2021, a threefold increase in market share over four years.

For asset management firms, the business case is compelling. A fund hemorrhaging assets in mutual fund form becomes a growth product in ETF form, often without any change to the underlying investment process. Same portfolio manager, same strategy, same holdings.

There are risks worth watching, though. The influx of capital into converted ETFs does not guarantee better performance. If anything, rapid asset growth can challenge capacity-constrained strategies, particularly in less liquid corners of the market.

With 60 conversions in 2025 alone and hundreds of new active ETF launches on top of that, standing out in a saturated marketplace will require more than just switching the fund structure.

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