Concerned about an AI bubble? Sign up for The Daily Upside for smart and actionable market news, built for investors.

So many active ETFs. So little time.

Active ETFs have exploded in popularity over the past few years. Independent RIAs held roughly $28 billion in active ETF assets in the first quarter of 2021, which surged to nearly $400 billion by the end of last year, according to FINTRX data. Yet despite the rapid growth, advisors remain cautious about significantly increasing allocations. Active ETFs now account for roughly 80% of new launches, and industry experts say the sheer number of products entering the market can make it harder for advisors to determine where active ETFs belong in client portfolios.

“There’s so much product out there,” Brett Sheely, head of ETF specialists at AllianceBernstein, said during a panel discussion at the ETP Forum in New York on Tuesday. While active ETFs can play an important role in portfolios, he said, advisors can easily become overwhelmed by the expanding menu of options. “I do think that the onus is really on us [as asset managers] to ensure we’re providing all the education along with the tools.”

Sign up for The Daily Upside at no cost for premium analysis on all your favorite stocks.

READ ALSO: Here’s How Much ETF Employees Make and Why It’s a Problem and SpaceX IPO Pumps Rocket Fuel into Thematic Space ETFs 

Active ETFs don’t track a benchmark, and in many cases, attempt to outperform the broad market. That promise can appeal to investors, but it can also create challenges for advisors tasked with explaining performance when results fall short. “When you get that phone call saying, ‘Why did you put me in this?’ you’ve got to answer those tough questions,” a portfolio manager said during the panel

He argued that the active ETF market will eventually separate winners from losers, pointing to SPIVA data showing that roughly nine out of 10 active funds underperform their benchmarks over long periods. “This is a big industry, a lot of smart people, a lot of people who went to good schools, and for the industry to overall perform like that is not great,” the portfolio manager said.

Not everyone on the panel viewed active ETFs through the same lens. One expert argued that investors should have the freedom to take calculated risks. “I don’t know that we should necessarily always be trying to protect retail investors from themselves,” he said, adding that active ETFs can offer a more accessible way to pursue higher-risk strategies than trading options or futures directly.

Money Where Your Fund Is. For his part, Sheely puts his own money into active ETFs. “That’s where I usually look for things that are differentiated and where I think I can get longer-term outperformance,” he told Advisor Upside in an interview. “I can’t get that through an index.”

This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.