How Active ETFs Are Reshaping Fund Fees

Morningstar’s 2026 US Fund Fee Study showed that many of the broad trends from prior years continued in 2025:

• There were more fee cuts than fee hikes.
• Investors again overwhelmingly preferred cheap and passive funds to pricey, actively managed funds.
• Semibundled and unbundled share classes remained a favorite for advisors, as those service fee arrangements make room for the cost of advice.

Other intriguing stories were brewing under the surface, however. Ripples observed in prior reports have now become a wave.

• Vanguard’s low-fee superiority finally met its match. Investors paid the same for Charles Schwab’s low-cost lineup as they did for Vanguard’s in 2025.
• Exchange-traded fund investors still pay less than mutual fund investors, but the gap continues to narrow.
• New funds are expensive, and cheap launches are increasingly rare as the economics of operating low-cost funds are challenging.

The full report covers all of these trends and much more of what transpired across fund fees last year. Below, I dig into how active ETFs are beginning to reshape the fund fee landscape.

Headline Fees Continue to March Lower

Investors saved nearly $6.8 billion in estimated fund expenses last year. Any fee decline is a big win for investors because fees compound over time and diminish returns.

Every broad measure of US fund fees declined again in 2025. Morningstar’s database of US open-end mutual funds and ETFs reported the asset-weighted average expense ratio was 0.32% in 2025, a 5.60% decline from 2024.

The asset-weighted average best represents the costs borne by fund investors because it approximates what investors paid in fees, on average, for the funds they invested in. For example, the asset-weighted average expense ratio for active US equity funds was 0.58% in 2025, versus 1.00% when calculating an equal-weighted average for this group. Funds with expense ratios above 1% accounted for a small portion of assets invested in active US equity funds at the end of 2025.

New Fund Fees Tell a Different Story

Asset-weighted average fees reflect where investors allocate, while the equal-weighted average reflects industry trends. There are two industry trends evident when observing new fund launches and their costs:

1. ETFs continue to be the preferred vehicle for investors and providers alike.
2. Relatively pricey launches offer better business opportunities than cheaper funds.

Active ETFs Are Setting the Trend

Combining both these trends means the proliferation of actively managed ETFs. We’ll see how investors decide to allocate across the vast array of new options, but one thing is clear right now: Asset managers can’t launch enough of them.

There was a tsunami of active ETF launches in 2025. Of the 1,131 ETFs birthed last year, 950 were actively managed. Many of these “active” ETFs aren’t all that active, however. There were some new low-cost ETFs managed by fundamental active managers, like JPMorgan Active High Yield JPHY and Vanguard Short Duration Bond VSDB, but the vast majority of new launches test waters not usually charted by large incumbents.

Smaller ETF providers, enabled by white-label ETF firms, have flooded the market with a wide range of obscure ETFs. Such ETFs have novel risk/reward profiles, and they usually don’t have to bow to competition from the largest ETF managers. Vanguard, iShares, and State Street do not offer funds in the trading—leveraged equity Morningstar Category. State Street and iShares offer derivative-income ETFs, but their presence in that category is limited.

Funds in these categories tend to charge higher fees than those in more traditional stock or bond categories. Since fees are a major source of asset manager revenue, it’s not hard to see why some firms are gravitating toward these higher-cost segments. It’s difficult to find success in ETFs, but finding success in relatively expensive ETFs can mean serious windfalls for their sponsors. These categories have not experienced the fee competition long observed elsewhere. At least not yet.

Which Active ETFs Will Find Success?

Active ETFs face an uphill battle. While they could provide a lifeline to mutual fund managers that may be bleeding assets, there is no fighting broader trends. Investors have overwhelmingly preferred cheap and predominantly passive funds.

Porting a mutual fund strategy into an ETF or tacking on an ETF share class may spur interest for a time, but other factors will eventually determine a fund’s staying power. Performance matters, of course, but fees also matter. Trends show that for active funds to cut it, they have to be cheap.

History shows that cheap funds endure. We will see if the emergence of relatively expensive, novel ETFs is enough to reverse the long-term trend of investors paying less for their funds year after year. For now, I’m skeptical.