The U.S. ETF market remains dominated by low-cost index products, but actively managed products have expanded significantly in recent years. Research data shows that actively managed products now constitute the majority of new launches, with increasing capital inflows; however, higher management fees are once again raising the industry’s average cost.
The proportion of active new issuances has increased.
Previously, the Vanguard S&P 500 ETF (VOO) surpassed $1 trillion in assets under management, becoming the first ETF to cross this threshold. Primarily designed to track the index, the fund has an annual expense ratio of just 0.03% and has long been regarded as a representative of low-cost passive investing.
TMX VettaFi data shows that approximately 80% of newly launched ETFs in the U.S. over the past two years and since 2026 have been actively managed. As of early June, of the $866 billion in net inflows into U.S. ETFs this year, $313 billion flowed into active strategies, accounting for about 36%.
New products increasingly utilize options strategies.
Morningstar researchers say that many active ETFs today no longer rely on the traditional star-manager stock-picking model. New products are increasingly focused on categories such as options, derivatives income, and predefined outcome strategies, using automated trading tools to meet diverse investment needs.
Some of these products are designed for short-term traders seeking to amplify returns from individual stocks or sectors, while others emphasize income enhancement or trade off downside protection for upside potential. Analysts view them generally as tactical allocations rather than core holdings.
High fees erode long-term returns
Morningstar data shows that, by the end of 2025, the average annual expense ratio for passive equity ETFs was 0.14%, and 0.44% for active equity ETFs. As more high-fee products have been launched, the asset-weighted average expense ratio for ETFs has slightly increased over the past year.
As of the end of May 2026, more than three-fifths of newly launched ETFs this year have an annual expense ratio of at least 0.5%, and more than one-fifth reach or exceed 1%. The average annual expense ratio for all newly launched ETFs is 0.71%. Researchers note that fees are directly deducted from returns, and the difference becomes more pronounced the longer the holding period.
- At an annual fee of 0.03%, the amount will be approximately $276,000 after 40 years.
- At an annual fee of 0.71%, the amount will be approximately $231,000 after 40 years.
- In two scenarios, the cumulative fee difference is approximately $46,000.
Industry experts say that higher fees may be justified if a product offers risk management, tax efficiency, or strategies that are difficult to replicate independently. However, for most investors, comparing costs remains the most straightforward criterion when selecting ETFs.