Alternative exchange-traded funds are drawing record investor interest in 2026, even as semiliquid private credit vehicles face mounting redemption requests. According to Morningstar Inc., estimated net flows into alternative ETFs reached $10.7 billion in the first seven months of the year—more than four times the total for all of 2025. The surge underscores a broader shift among financial advisors and their clients toward daily-liquidity products that offer exposure to nontraditional strategies without the lockups and redemption caps typical of closed-end funds.
In contrast, investors pulled $5.9 billion from nontraded business development companies (BDCs) in the second quarter alone, bringing year-to-date redemptions to $12.7 billion, according to Robert A. Stanger & Co. These semiliquid funds, which gained popularity for their high yields, typically allow investors to redeem only about 5% of net asset value per quarter. The divergence in flows highlights growing advisor preference for the flexibility and transparency of ETFs, especially as concerns about rising interest rates and traditional fixed-income performance persist.
“People are freaking out about the traditional 60/40, stock/bond mix,” said Jason Kephart, senior principal of multi-asset manager research at Morningstar. “The 40 hasn’t worked for a while now.” He added that the move into alternative ETFs is part of a broader diversification away from conventional bonds, which have struggled as rate expectations shift. An alternative investment executive, speaking on condition of anonymity, noted that “the broader market has gone to cash for the short term,” citing geopolitical noise as a factor.
The renaissance of liquid alternative ETFs marks a reversal from a few years ago, when the category was largely dismissed. However, skeptics question whether these funds will deliver on their promises. “To my mind, the broader story is, yes, there’s a lot of money going to alternative ETFs, but will the returns be any good?” the executive said, recalling the post-credit-crisis push into long/short mutual funds that underperformed because they held too many public securities and too much cash. “We’re in the same spot with these current ETFs.”
One standout is the iShares Systematic Alternatives Active ETF (ticker: IALT), launched in December 2025. The fund invests across global asset classes and a range of nontraditional strategies, aiming for total return in both strong and stressed markets. By August 24, it had amassed $5.6 billion in assets, a remarkable feat for a fund less than a year old. Its rapid growth reflects advisor demand for turnkey alternative exposure in an ETF wrapper.
Wall Street is responding to this demand. In August, Goldman Sachs Asset Management announced an agreement to acquire NEOS Investments, a $30 billion income-ETF specialist, for up to $2.25 billion in cash and equity. The deal, which follows Goldman’s purchase of Innovator Capital Management last year, will combine NEOS’s 19 systematic options-based income ETFs with Innovator’s defined-outcome lineup. Goldman said the combined platform would rank among the top 10 active ETF providers by assets. CEO David Solomon called the acquisition complementary, noting it would give investors “a diverse toolkit for different market environments.”
The fee disparity between semiliquid alternatives and ETFs remains stark. A Morningstar report from June found that the average annual net expense ratio for semiliquid funds, adjusted for borrowing costs, was just over 3%. That figure understates true costs because of inconsistently disclosed incentive fees and, for funds of funds, acquired fund fees and expenses. Semiliquid funds also often employ leverage, adding to expenses. For advisors accustomed to ETF fee schedules, the sticker shock is significant.
As the market evolves, advisors are increasingly integrating alternative ETFs into client portfolios, a trend highlighted by recent CAIS data on alternative asset flows. The broader move toward liquid alternatives is also reflected in shifting ETF demand patterns as rate expectations change. With ETF inflows on pace for a record year, the appetite for alternative strategies shows no sign of abating.
