Active ETFs Fuelled by Investor Attention, Not Performance, Research Finds
BOSTON, MA – October 21, 2025 – A new study reveals active Exchange Traded Funds (ETFs) are increasingly driven by investor “attention effects” – trading based on hype and perceived coolness – rather than underlying performance and value, possibly leading to market volatility and diminished returns.
Finance professor huang’s research indicates that the structure of active ETFs, which trade like stocks throughout the day, shifts investor focus away from conventional performance analysis. “What we find is that when you make an investment fund almost operate like a stock…that creates an attention effect,in the sense that people don’t really look at the performance of the fund anymore,” Huang explained.Instead, retail traders are “trade[ing] based on thier feelings, their attention, or if this fund is doing something cool.”
“Something cool,” according to Huang, could include trading in high-profile stocks like Tesla, GameStop, or DraftKings simply for the publicity, or an asset manager generating buzz through media appearances.
The rise of active etfs has been dramatic. Over the past decade,the market share has grown from a few hundred million dollars to over $1 trillion,wiht BlackRock projecting a further increase to $4.2 trillion by 2030. Though, Huang’s research suggests this growth isn’t necessarily translating into positive outcomes for investors.
The study warns that attention-driven trading in active ETFs could increase market volatility and ultimately result in “worse outcomes for traders, especially traders no longer focused on performance and value.” Huang stated,”This is going to have a huge impact on market efficiency and on investors’ welfare.” He advises retail investors to “focus more on performance and the fees they’re being charged.”
Ultimately,Huang concludes that most active ETFs “really don’t deliver superior outcomes. They are just shiny objects, and they grab your attention, and you are mind-controlled into buying these products.”