Asia-Pacific is witnessing a surge in active exchange-traded funds ( ETFs ) as regulatory shifts, investor demand, and technology converge to accelerate the adoption of active strategies in ETF format.

This was the assessment of senior members of State Street’s ETF servicing team, who described the massive growth in active ETFs as the next major phase in the ETF industry's evolution. The team was visiting Hong Kong as part of an Asia Pacific tour and did an interview with The Asset.

During the interview, Frank Koudelka, global ETF product specialist at State Street, framed the trend as “ETF 3.0”.

Koudelka explained that ETFs began with broad passive index exposure, then evolved into smart beta and factor-based products. The third and current wave is fully active management delivered through the ETF wrapper.

“The ETF investment wrapper makes it a lot easier to bring investment strategies to the masses,” Koudelka says. “Passive has dominated the ETF market, but now managers can come in with differentiated active strategies and utilize the efficiencies of the ETF wrapper to gain scale.”

Ahmed Ibrahim, head of ETF Solutions, APAC, at State Street, who was also part of the team that visited Hong Kong, highlights how regulators across the region are enabling active ETFs.

More local and global players

“ETFs are certainly growing and becoming more popular throughout APAC. Regulators have eased rules and promoted them, so we’re seeing both local issuers and large global players entering markets like Taiwan, Australia, and Hong Kong,” Ibrahim says.

Citing Australia as an example, Ibrahim says: “In 2021, State Street Australia had just one active ETF fund. By 2026, there are nine active ETF issuers and over 25 active funds – about 25% of the market. That growth is going to continue because clients see alpha opportunities there.”

Active ETFs are also attracting a distinct investor base. According to Koudelka, “ETF buyers are generally younger and wealthier than their mutual fund counterparts. They’re digitally savvy, and that’s why they gravitate toward ETFs – the ease of use and accessibility through brokerage apps makes them appealing, compared to the friction of mutual fund purchases.”

Advisers are also playing a role, using active ETFs within model portfolios and asset allocation strategies. Retail investors, meanwhile, are drawn to thematic and niche exposures that active ETFs can deliver.

While Asia-Pacific markets are developing their own momentum, lessons from the United States are shaping expectations.

Rising trend of conversions

Jeff Sardinha, head of ETF solutions for the Americas, points to mutual-fund-to-ETF conversions as a major driver, saying, “We’ve seen upwards of 180 conversions in the US, shifting about US$135 billion in assets from mutual funds to active ETFs.”

Sardinha also notes the emergence of actively managed ETF share classes, with nearly 100 firms filing for the capability. “This structure will help active ETFs grow by adding more options and allowing investors to transition from mutual fund classes to ETF classes on a non-taxable basis,” he says.

Asked how State Street is supporting ETF issuers in Asia-Pacific, Ibrahim says his firm leverages its global technology platform to support issuers entering markets across the region, hence, providing consistent servicing.

“If you’re a client with ETF funds in the US or Europe, you’ll see the same technology and reporting when you launch in APAC. It’s plug-and-play in markets like Singapore, Hong Kong, and Australia,” Ibrahim says.

This unified approach has created significant efficiencies, saving hours of processing time and enabling State Street to deliver value-added services.

The more, the merrier

Despite intense competition among ETF service providers, State Street believes the market is expanding fast enough to accommodate multiple players.  “ETFs are growing from both an asset standpoint and inflows in nearly every market,” says Koudelka. “The misnomer that ETFs were only for passive investments has been dismissed.”

State Street’s differentiation lies in scale and expertise. “We service about 40% of ETFs globally across 15 jurisdictions,” he notes. “New issuers want intelligence about what they don’t know, and we can provide that. Our proprietary global tech stack ensures clients get the same experience across markets.”

The State Street executives believe active ETFs will continue to expand across Asia-Pacific, driven by regulatory support, investor demand, and operational innovation. “Clients see alpha in active strategies, and with regulators opening the door, we’re only at the beginning of the growth curve,” Ibrahim says.

In 2025, active ETF adoption in the APAC region experienced significant acceleration, driven by a 42% growth in total ETF flows, with active strategies making a substantial impact, according to J.P. Morgan Asset Management.

While active ETFs represented only 9% of total assets, they accounted for approximately 25% of all ETF flows in the region in 2025, with over 50% of new ETF launches being active, the firm adds.

State Street is renowned for ETFs primarily because it created the very first US ETF – the SPDR S&P 500 ETF Trust ( SPY ) – and remains a pioneer in product innovation and capital market liquidity. Through State Street Global Advisors ( SSGA ), the firm offers a massive, cost-effective range of SPDR ETFs across equity, fixed income, and alternatives.