For years, investing in index trackers, like the S&P 500 and FTSE All-Share, has been the default choice for so many ETF investors. Investors love them because you get to invest in every company in that index, often giving you instant diversification.
But as more money flows into tracker funds, it’s creating a new volatility dynamic.
How tracker fund flows can amplify market swings
When stock markets wobble and money moves out of tracker funds during a downturn, funds must sell a slice of everything they hold, including stocks that are already falling, adding to the pressure.
The same also happens in reverse.
When markets rally and more money pours in, funds buy more of whatever already has the largest weighting, sometimes stocks that have risen on hype rather than fundamentals.
Because of this, some are now arguing that stocks within indexes are increasingly moving together, reducing the diversification benefits.
In the short term, this could lead to more volatility than we’ve perhaps seen in the past.
For buy and hold investors, this shouldn’t matter. And over the long term, there’s still no denying that passive investing is one of the best ways to invest and grow your wealth.
However, watching your portfolio go through big ups and downs is never easy.
Having an expert team managing some of your portfolio can help here, while also giving you the opportunity to outperform.
Why blend passive and active ETFs?
As we see new record flows into index investments, along with more stock market volatility, there’s growing evidence that we could see more ‘market inefficiencies’ and this is where opportunities can arise for expert active managers.
Active ETFs offer investors a way to combine the hands-on stock selection of traditional fund management with the low costs, intra-day trading, and daily transparency of an exchange-traded fund.
In 2025, AUM in active ETFs increased by over 86.6% from the previous year.
Here’s why active strategies are drawing serious attention, and how they can strengthen a modern portfolio.
3 reasons investors are choosing active ETFs
As market conditions become less predictable, investors are increasingly turning to expert active strategies to achieve three core goals.
• Outperformance potential: turning to trusted expert investment teams with decades of experience who use fundamental research to hunt down undervalued opportunities.
• Targeted goals: tailoring portfolios toward specific goals, whether that means generating regular income, pursuing thematic growth, or managing downside risk.
• Real-time flexibility: adapting to economic shifts on the fly, rather than waiting months for a passive index to rebalance.
While passive funds only react when an index rebalances, active ETFs adjust their holdings in real time as market conditions change.
Active vs passive ETFs: where can active management win?
The limitations of passive tracking become obvious when looking at specific asset classes.
Fixed income and bond markets
Passive bond ETFs weigh holdings by debt size, meaning the more debt a company or government issues, the larger its position in a portfolio.
Active bond ETFs reverse this setup.
Managers can overweight issuers with solid balance sheets while avoiding heavily indebted borrowers that carry higher default risk.
Equity markets and thematic trends
Traditional equity benchmarks weigh companies purely by market capitalisation, forcing investors to buy heavily into whatever has already run up in price. Active stock ETFs allow managers to invest based on long-term earnings potential and true valuation.
This flexibility is especially powerful when targeting thematic trends like artificial intelligence or climate technology, allowing funds to look beyond narrow benchmark limits and capture a much broader set of opportunities.
How to choose the right active ETF provider
Because performance varies widely between active strategies, choosing the right fund manager is essential. It’s worth looking for providers with extensive global research teams, disciplined investing, and a proven track record across different types of market environments.
Leading global managers, like J.P. Morgan Asset Management, have developed comprehensive ETF lineups spanning global equities, fixed income, and income strategies. These funds bring institutional-grade research and active investment selection into accessible, low-cost ETF structures.
3 active ETF ideas to explore right now
Here are three active ETFs available to explore on InvestEngine.
1. JPMorgan Nasdaq Equity Premium Income Active UCITS ETF (JEQP)
For investors prioritising income, JEQP combines an actively managed portfolio of Nasdaq-100 companies with a covered call options strategy designed to deliver steady monthly cash flow.
The fund managers hold a portfolio built around the large-cap growth companies that make up the Nasdaq-100. To generate extra cash, they sell (or “write”) call options on the index. In exchange for giving the buyer the right to purchase market returns above a specified target level (the “strike price”), the fund collects an upfront cash fee called a premium. This premium is paid out to investors as regular monthly income.
In flat, slow-growth markets, collecting these option premiums provides an extra source of yield that standard dividend stocks cannot match, while providing a cushion against market drops.
In return for that income, the fund trades away some of its growth potential. If the index rallies sharply past the strike price, the fund must pass those excess gains to the option buyer. This means JEQP will likely lag a straight Nasdaq-100 tracker during strong, fast-moving bull markets. Because the Nasdaq-100 is concentrated in large technology and growth companies, JEQP also carries more sector concentration than a broad global fund.
Overall, JEQP is built for investors looking to trade maximum capital appreciation for high, consistent monthly income.
2. JPMorgan Global Research Enhanced Index Equity Active UCITS ETF (JGEP)
JGEP provides core exposure to developed-market global equities, aiming to deliver consistent, incremental outperformance over the MSCI World Index without taking on excessive active risk.
Rather than making bold, speculative bets, JGEP’s managers leverage J.P. Morgan’s global network of over 80 fundamental research analysts. By analysing thousands of companies, the fund makes small, disciplined adjustments, slightly overweighting high-conviction stocks with strong growth and valuation fundamentals, while underweighting weaker ones.
The fund is engineered to closely track the sector, regional, and factor weightings of the MSCI World benchmark. This ensures the portfolio maintains broad diversification, keeping its risk and volatility profile very similar to a standard index tracker.
JGEP is designed as a core building block for portfolios. Some investors seeking the broad diversification of global equities may look at it for its potential to outperform standard passive index trackers.
3. JPMorgan US Research Enhanced Index Equity Active UCITS ETF (JURE)
JURE offers targeted exposure to large-cap American companies, leveraging deep analyst insights to seek outperformance over the S&P 500 without taking on significant active risk.
Traditional market-cap US indices can become heavily concentrated in a handful of giant mega-cap tech stocks. JURE maintains sector and regional weightings nearly identical to the S&P 500, ensuring broad US exposure while using stock-level selection, not sector bets, to drive returns.
JURE works as a core foundation for US equity exposure, giving long-term investors broad access to the world’s largest stock market alongside the added edge of fundamental stock selection.
On InvestEngine, investors can integrate active ETFs directly into their DIY portfolio within a Stocks and Shares ISA, Self-Invested Personal Pension, General Investment Account or Business Investment Account with zero platform fees or trading commissions.
Whether you are looking to enhance yield, target specific market themes, or manage downside risk, active ETFs give you a flexible, cost-effective tool to build a more resilient investment strategy.
Active ETFs: frequently asked questions
What is the difference between a passive ETF and an active ETF?
A passive ETF seeks to replicate the performance of a specific market index, such as the FTSE 100 or S&P 500, by buying all (or a representative sample of) the underlying assets in that index. An active ETF is managed by a team of professional portfolio managers who select specific securities aiming to outperform a benchmark or achieve a targeted investment outcome.
Are active ETFs more expensive than passive ETFs?
Yes. Passive ETFs simply track an index at minimal cost, whereas active ETFs charge a premium to cover professional portfolio management and strategy execution.
Do active ETFs offer daily transparency?
Yes. Unlike older mutual funds that only disclose holdings periodically, active ETFs provide daily portfolio transparency, allowing you to see exactly what underlying stocks or bonds the fund holds every single day.
Investment risks
The value of investments, and any income from them, will fluctuate. This may partly result from changes in exchange rates. Investors may not get back the full amount invested. Emerging markets can carry greater liquidity, political, and currency risk.
Important information
Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest. Past performance is not indicative of future performance.
ETF costs apply. Remember, ISA and tax rules can change and any benefits depend on individual circumstances.
This article is published in paid partnership with J.P. Morgan Asset Management. It is marketing material and not financial advice. It’s not a recommendation to buy or sell any asset class, security, or strategy. Views are based on current market conditions and are subject to change. If you’re unsure whether a product is suitable, seek advice from a financial adviser.