Passive and active ETFs can complement each other by providing an attractive balance between risk and return.
Investors are increasingly using active ETFs to replace or complement passive allocations, and also as substitutes for active mutual funds or direct investments.
Passive as well as active ETFs share similar risks in terms of performance, since both investments might go down as well as up in response to the performance of individual companies or general market conditions.
Active ETFs introduce higher tracking error risk, but they can help investors generate alpha for a portfolio alongside core passive holdings. Active ETFs can also be used for tactical allocations at different times through the market cycle.