Managers weigh ETF expansion strategies carefully

Instead of prioritizing only asset growth, fund managers evaluating ETF expansion should evaluate how it strengthens their overall operations. Jeff Sardinha, State Street’s global head of ETF solutions, highlighted this point in his September report, The changing economics of ETFs. By mid-2026, global ETF assets had surpassed $23 trillion, driven by unprecedented first-half inflows exceeding $1.3 trillion, according to ETFGI data.

Active ETFs alone reached $2.5 trillion in assets by June 2026, with over $500 billion in net inflows during the first half of the year. Beyond launching new standalone funds, managers now have alternatives like fund conversions, ETF share classes, acquisitions, and partnerships to enter the market and secure both assets and operational expertise.

Active ETFs offer traditional managers a chance to repurpose their existing investment strategies into a format widely adopted by advisors, investment platforms, and model-based systems. As Sardinha observed, ‘An ETF can expand access to an investment approach, unlock new distribution channels, and enhance client engagement—even as it reshapes the fund’s revenue structure.’

Before committing, managers must ensure their proposed strategies align with their brand identity and risk tolerance, while also confirming investors grasp how these products perform in varying market scenarios. Key considerations include whether the opportunity is worthwhile, the best entry method, how to secure distribution, whether the economics will benefit the business, and the firm’s readiness to invest.

Evaluating Entry Methods

Converting an existing fund can maintain its historical performance and retain investors, while ETF share classes allow a single portfolio to cater to diverse investor needs. However, these transitions require adjustments in distribution, operations, and governance that must be weighed against potential gains.

Sardinha emphasized that the critical question isn’t whether conversion is feasible, but whether the resulting investor base, target distribution channels, and long-term profitability justify the effort.

With over 5,000 ETFs and 5,500 listed equities competing in the U.S., portfolio decisions are increasingly shaped by centralized models, platforms, and due diligence teams. These gatekeepers evaluate more than just performance, scrutinizing liquidity, trading spreads, fees, transparency, and a provider’s ability to sustain the product post-launch.

Assessing Total Costs

Managers must account for all costs tied to acquiring and maintaining assets, including platform fees, sales support, marketing, trading infrastructure, and shared technology and risk management systems.

For instance, the migration of existing assets into lower-fee ETFs can compress revenue, requiring managers to weigh that loss against benefits such as retaining clients and improving competitive positioning. The report stressed that launch decisions should factor in total asset servicing costs and distinguish between product-level profitability and broader business impact.

Even if an ETF remains under scale, it may still support client relationships, model requirements, or a broader product lineup. The report concluded that providers must dedicate internal resources and governance to ensure an ETF’s success, noting that ‘assets under management reflect progress, but not the full picture of success.’

Measuring Success Beyond Assets

Management should track performance across a broader set of indicators, including net new versus migrated assets, revenue yield, margin contribution, distribution wins, trading quality, sales productivity, client concentration, operating performance, and progress against breakeven expectations.” The paper highlights the importance of considering the full cost of gathering and servicing assets when launching an ETF.

Managers should distinguish product breakeven from franchise breakeven, as a single ETF may remain sub-scale while still supporting a client relationship or broader product family.