VettaFi recently sat down with Bill Coleman, Vanguard’s head of U.S. ETF Capital Markets, at Exchange. Coleman discussed investor behavioral trends and the growing role that active ETFs are playing in portfolios.
Top Opportunities
VettaFi: What is top of mind right now?
Coleman: If you look at cash flows, we saw a trend [emerge] in 2023 [that has continued] into 2025, and that is active ETFs. What's interesting is that the ETF industry has been a place of innovation. You have equity ETFs, and this just used to be indexed, and then we got more comfortable with fixed income ETFs following 2020, and then active has emerged.
In 2024 and 2025 to date, active has pulled in about a third of the cash flow, which is very significant – especially when you're considering that they represent about 8% to 9% of assets under management. So 8-9% market share pulling in a third of cash flows.
You look at ETF launches: 80% to 90% of new products are active, and there's a lot of [new ETFs coming to market]. I think that's really interesting. There's obviously client demand for this, and you have issuers very willing to launch these types of products. So, I think that's probably the main theme that we're seeing: active, active, active.
Another one: If you look at U.S. cash flows in 2024, 58% went into low cost [offerings] or in products [charging] 10 basis points or less. Low cost continues to be a story. You take that globally, it's about 51%.
So, low cost – and low cost active. I think that positions Vanguard very well because we are low cost and we're also proven to be great active managers as well. We're excited for what's happening.
How Do Investors Look at Active ETFs?
VettaFi: So, low cost active. Have you found there's a particular point, up to so many basis points, that investors are willing to pay? Any additional details on how investors are looking at active ETF costs would be helpful.
Coleman: Although 58% of cash flows did go into products 10 basis point or less, you do see there are investors still willing to pay a little bit more for active – as long as the product works out. You're willing to pay a little bit more if you get a little bit more in performance. As more of these products come to market, it'll be interesting to see which ones retain assets, which ones lose assets, and where the price point actually moves.
If you look at our active fixed income product Vanguard Core Plus Bond ETF (VPLS), it's priced at 20 basis points. The next cheapest [fund in the category] is 34 basis points. That puts you 14 points ahead.
Think of it as like a football game: You start the game 14 points ahead, you're more likely to win. But, at the very least, you can change the way that you're managing the game and take less risk.
I think low cost is especially important for active because you want to outperform your benchmark. The higher your cost, the more risk you have to take to outperform the benchmark, outperform the expense ratio you're charging.
If you start with a low expense ratio, like you see in Vanguard active products, you're more likely to outperform that benchmark and take less risk so risk-adjusted returns are actually better.
Areas in High Demand
VettaFi: Active fixed income ETFs are in high demand. What about other asset classes – are you seeing the same appetite for active products?
Coleman: I would say there are two stories there. On the fixed income side, you see more interest in active fixed income because bonds were actually yielding something now. For the longest time, you weren't getting much out of bonds.
Bonds are back; they're yielding. You’re getting real returns in bonds, and there's a lot of opportunities for active managers to outperform benchmarks and add a little bit more return for investors.
On the equity side, there's more volatility [in the current environment]. There's more uncertainty. So you see the active flows on the equity side go into more of the buffered products, or products that use different options strategies to collar returns – minimize your downside, but also capture upside.
VettaFi: Do you think that this is a cyclical trend coinciding with a shifting regime and more complicated market environment, or is this a secular shift?
Coleman: I think things are shifting and this is a secular move. There are hundreds of [active] products being launched. Not all of them are going to survive but the ones that have appropriate costs and have the performance, they'll continue to remain a product that goes on. But I think these active products are here to stay.
VettaFi: What Vanguard funds look interesting to you right now?
Coleman: The two ETFs I think advisors should pay attention to right now from Vanguard are the Vanguard Core Bond ETF (VCRB) and then VPLS, our core plus bond fund.
These are ETFs that we launched back in December 2023. Performance has been pretty good. Flows have been really strong as well. They're trading very well.
For VPLS, performance is solid, trading is solid, and it's priced very competitively, where you're starting the game 14 points up.
For more news, information, and strategy, visit the Fixed Income Channel.
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