Exchange-traded funds (ETFs) have undergone a significant transformation over the past decade, due to positive changes in regulations and evolving investor demand.

While passive index ETFs have long dominated the market, the rise of active ETFs is changing the landscape.

Investors are pleading for more than just broad-market exposure; they want strategic, risk-managed portfolios that can adapt to changing market conditions or provide the perfect final piece to complete their portfolio.

With this shift, trading execution has become a critical differentiator. Active ETFs require far more sophisticated trading strategies than their passive counterparts, particularly when managing options contracts within an ETF structure.

Firms with access to specialized trading desks are positioning themselves ahead of the competition.

Why Active ETFs Are Growing Rapidly

The demand for actively managed ETFs has surged as investors seek higher alpha, enhanced income strategies, and more tactical investment options.

In 2024 alone, 79% of newly launched ETFs were actively managed, with 42% of those incorporating options strategies like covered-call writing, buffers, and protective puts – features not commonly found in passive ETFs.

Why ETF Specialist Trading Teams Matter

Trading equities and options within an ETF wrapper introduces complex regulatory challenges that require precise risk management and execution.

A range of regulations applies, including rules that prevent options positions from restricting a fund’s ability to trade underlying stocks, daily risk checks to ensure exposure aligns with objectives, and diversification limits set by the Investment Company Act of 1940.

Adhering to these regulations while sticking to a portfolio’s objective can be cumbersome, often requiring quick decision-making by management. And quick decision making is key.

While building an in-house trading team might seem like the solution, it comes with significant challenges. Beyond navigating complex regulatory compliance, issuers face high upfront costs, talent acquisition difficulties, and scalability issues depending on the number of ETFs managed. These factors can distract from core business operations.

This is why many issuers turn to specialized ETF sub-advisors with dedicated trading teams.

These trading teams leverage deep industry knowledge and established systems to manage the complexities of ETF trading, helping to ensure efficient execution, robust risk management, and regulatory compliance, all while reducing operational burdens at a lower cost that let issuers focus on their core products.

For ETF issuers prioritizing speed, performance, and risk mitigation, partnering with a specialized ETF sub-advisor can offer a key competitive advantage in today’s evolving market.

Tidal Expands ETF Sub-advisor Capabilities

Recognizing the importance of trading sophistication, Tidal Financial Group has doubled its trading firepower by acquiring ZEGA Financial’s trading business, cementing its role as a leading ETF platform for complex derivatives and options-based ETF strategies.

This expansion delivers faster, smarter execution for issuers, positioning Tidal as a leader in the active ETF surge.

As firms lean further into options-driven ETFs, those partnered with skilled sub-advisors will have a leg up.

Tidal’s investment in trading infrastructure shows that strong partnerships can help drive stronger ETF performance and a competitive edge in active investing.

Contact Tidal Financial Group today to learn more.