Year One of Active Managed ETFs: China's Alpha Revolution
Introduction
On June 17, 2025, China Securities Regulatory Commission Chairman Wu Qing announced at the Lujiazui Forum that the regulator would further enrich investment products and tools, supporting the launch of active ETFs on the Shanghai and Shenzhen stock exchanges. This milestone statement not only marks a key turning point in China's capital market product structure from 'passive dominance' to 'active innovation,' but also heralds a profound 'Alpha Revolution.' On the same day, the Shanghai and Shenzhen stock exchanges quickly issued relevant business guidelines, making systematic arrangements for active ETFs in terms of product naming, investment operations, and information disclosure, paving the way for this innovative product to land.
Active Managed ETF Breaks the Ice: Filling a Market Gap
The launch of active managed ETFs is no accident, but a strategic decision by regulators under multiple factors. After more than two decades of development, the domestic ETF infrastructure—trading mechanisms, clearing and settlement—is highly mature, and investors' awareness of the convenience of on-exchange trading, position transparency, and cost advantages continues to deepen. Meanwhile, the investment value of active equity funds is recovering, and investors' recognition of active management capabilities has significantly rebounded. The combination of active management and ETFs coincides with the dual awakening of investor demand.
Currently, on-exchange ETFs in China are mainly fully passive index products, with no fully active managed ETFs. Although index-enhanced ETFs exist, their deviation from the benchmark is limited to 20%, still within the 'limited active' category. The launch of active managed ETFs will fill the gap in fully active equity products traded on exchange, providing investors with a convenient tool for 'expert stock selection + on-exchange trading.'
Globally, active managed ETFs have become one of the fastest-growing areas in asset management. According to ETFGI, as of March 2026, there were 4,902 active ETFs worldwide with total assets of $2.12 trillion, nearly double the size at end of 2024. The U.S., the main market for active ETFs, had about $1.65 trillion, accounting for over 80% of global total. Over the past decade, the compound annual growth rate of active managed ETFs in the U.S. was 35%, far exceeding passive ETFs' 22%, demonstrating strong growth momentum.
Passive Investment Myth Encounters Challenges
Behind the breakthrough of active managed ETFs lie the growth bottlenecks facing the ETF market itself and the serious challenges to the passive investment myth. Over the past three years, the A-share market experienced deep adjustments, and passive investing once dominated. However, since 2025, market style has significantly shifted, and active management funds have shown strong alpha generation capabilities. According to Wind data, the average return of active equity funds over the past year was 42.05%, with 85.9% of products posting positive returns, significantly outperforming major broad-based indices.
Affected by continued market volatility, the total size of domestic ETF products is undergoing a 'turbulence.' As of June 19, the total market ETF size was 4.76 trillion RMB, down 23.80% from the peak of 6.2 trillion on January 14 this year, with net outflows of over 300 billion RMB year-to-date. Among them, the largest category—equity ETFs—suffered the most severe 'bleeding,' with size dropping from a peak of 4 trillion to 2.62 trillion, a decline of 35.36%. The 'halving' of broad-based ETFs is the biggest gap, with total size shrinking from 2.64 trillion to 1.08 trillion, a drop of 59.23%.
The shift of funds from 'market beta' to 'sector beta' is one major reason for the shrinkage of broad-based ETFs. As market style changed significantly, investor preference moved from broad indices to sector themes, leading to massive redemptions of broad-based ETFs. Taking products tracking the CSI 300 as an example, 24 out of 30 broad ETFs saw scale declines, with cumulative shrinkage of 828.71 billion RMB. Among them, the CSI 300 ETF from Huatai-PineBridge dropped from 429.73 billion to 131.83 billion, a decline of 69.32%. In contrast, sector theme ETFs and commodity ETFs recorded significant growth, reflecting that under structural conditions, funds prefer chasing high-prosperity sectors rather than overall market performance.
Structural Transformation Reshapes Asset Management Ecosystem
The launch of active managed ETFs is not merely an expansion of product categories, but a structural restructuring of the asset management ecosystem. This 'Alpha Revolution' will push the public fund industry from 'competing on distribution channels' to 'competing on research capabilities,' from 'scale expansion' to 'quality improvement,' and from 'fee competition' to 'performance-driven success.'
Against the backdrop of homogeneous product structure and intense competition, the emergence of active managed ETFs is timely. Over 80% of equity ETFs are concentrated in broad indices and a few popular sector tracks, leading to a 'price war' as product differentiation is lacking, with management fees for mainstream broad ETFs already cut to the limit of 0.15%-0.20%. If active managed ETFs can demonstrate alpha generation capabilities, they are expected to attract more on-exchange clients and expand the customer base. For investors, more tools become available: core active ETFs tracking broad indices can complement existing tool-type products to build more diversified portfolios.
Moreover, active managed ETFs can fully leverage managers' value discovery capabilities. Through fund managers' active stock picking and dynamic rebalancing, more fundamental information is incorporated into asset pricing, strengthening the capital market's price discovery function and enhancing market endogenous stability. Bloomberg Intelligence analysts note that active stock-picking ETFs 'enter the market at the right time,' meeting investor demand for alpha while also filling the market gap left as 'national team' gradually reduces ETF holdings.
Conclusion
The launch of active managed ETFs is an important milestone in the development of China's capital market. It not only aligns with global asset management trends but also provides domestic investors with a new wealth management tool. Against a backdrop of rising global active ETF size and challenges to the passive investment myth, the birth of this innovative product will undoubtedly reshape the competitive landscape of China's asset management industry.
Looking ahead, as active managed ETFs are gradually implemented and market acceptance increases, China's capital market product structure will move from 'passive dominance' to a new era of 'active innovation.' This 'Alpha Revolution' will not only drive the public fund industry from scale expansion to quality improvement, but also bring investors more diverse and effective investment choices. Under the regulatory principle of 'pilot first, gradual progress, strict risk prevention,' active managed ETFs are expected to become an important driver of high-quality development in China's capital market.
