Please stay tuned for important disclosure information at the conclusion of this episode.

Okay, welcome to Investing Insights.

I'm Sarah Hanson, a markets reporter at Morningstar, and I'm filling in for Ivana Hampton today.

We're on the podcast stage at the 2024 Morning Star Investment Conference at Navy Pier in Chicago.

And today we're talking about active ETFs. These have soared in popularity kind of seemingly overnight. They're gaining market share

at a rapid clip, and they're being recognized as a long overdue opportunity for active

managers, and not to mention, a new cost-effective tool for investors. So what is driving all of this growth? Luckily for us from Morningstar

Research Services, we have Brian Armour, who's the director of passive strategies research for

North America. We have Daniel Sotirov, who's a senior manager research analyst, and we have Ryan

Jackson, who's a senior manager research

analyst of passive strategies. And they're here to tell us everything investors need to know. So

thank you so much for joining me. So first things first, Brian, maybe you can help me with this one.

What are active ETFs? How do they work and how are they different from passive funds?

Yeah, great question.

So, ETFs are really just mutual funds that trade on a stock exchange.

And so structurally, they're very similar.

The big difference is they tend to be a bit more tax efficient.

So last year, 4% of ETFs distributed capital gains,

60% of mutual funds did. And they tend to be lower costs. So if there's a similar mutual fund,

an ETF would be coming at a cost. It's similar to like the institutional or retirement plan chair

class fee level.

So both very easy wins for investors.

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