Last week, the Vanguard S&P 500 ETF, colloquially known by its ticker symbol “VOO,” became the first exchange-traded fund to surpass $1 trillion in assets. It was a landmark moment for a company that has become a standard-bearer in an industry trending toward cheap, passive strategies.
VOO, like many funds that anchor investors’ portfolios, does not aim to outperform a major market index, but simply tracks its performance. And because there is no star fund manager to lead stock selection, the fund’s operating costs are low, charging shareholders just 0.03% of their annual assets.
However, the popularity of index funds does not mean that ETF issuers and investors are giving up on active management. Over the past two calendar years, and so far in 2026, about 8 in 10 new ETF launches have been actively managed funds, according to Morningstar.
According to investment research firm TMX VettaFi, of the $866 billion in investor cash flowing into U.S. ETFs through early June of this year, $313 billion, or 36%, went into active strategies.
“Active management has really arrived in the ETF world,” says Cynthia Murphy, research director at TMX VettaFi. “This is a major trend in product development and investor demand.”
In fact, the average asset-weighted expense ratio of ETFs rose slightly last year, after years of decline, according to FactSet.
“This is purely a sign of a high-cost launch,” said Zachary Evens, Manager Research Analyst at Morningstar.
What you need to know about active ETFs
Active ETFs have been around for years, and in their early days, many followed the same model as actively managed mutual funds, with managers looking to build portfolios that beat the market.
“Mr. Peter Lynches, the old-school stock picker of the world, that kind of active management in the ETF market has been slow to catch on because low-cost passive investing and index investing work so well,” Murphy says.
In fact, 79% of large U.S. equity fund managers failed to catch up with the S&P 500 last year, according to S&P Dow Jones Indices data. This marks the 16th consecutive year that more than half of active managers who use S&P as a benchmark have lost to the index.
But experts say many of the new actives are not led by high-end managers and are unlikely to beat the market’s bogeys.
“It’s not what you think of when you think of an actively managed fund,” Evens says. “Instead, many of these are in the trading tools category and options categories such as derivative income and fixed results.”
Essentially, many of these funds automatically trade options and other types of derivatives to provide tailored results for specific types of investors, he says. Some funds are aimed at short-term traders looking to earn amplified returns in a particular stock or sector. Some increase the yield of stock portfolios held for income. Additionally, some companies have adopted strategies that limit short-term losses for shareholders, which also limits upside potential.
Although these are unlikely to make sense as core holdings, Evens says it’s worth consulting a financial professional to see if they can serve as a tool for investors in very specific situations.
“Investors need to consider their goals over time, including what the product provides and, of course, the cost of that product. Whether the price they are paying is worth the value the product provides.”
Check fund fees before investing
If you choose to add an active strategy to your portfolio, be prepared to pay for it. As of the end of 2025, the average passive stock ETF will have an annual fee of 0.14%, compared to an active stock ETF’s annual fee of 0.44%, according to Morningstar.
Of the ETFs launched this year through the end of May, more than three in five had annual expenses of at least 0.5%, and more than a fifth had expenses of 1% or more, according to Morningstar. Average annual fee for all new ETFs: 0.71%.
Mike Casey, a certified financial planner with AE Advisors in Alexandria, Virginia, says that for some investors, the higher price tag is worth it.
“Slightly higher fees may be justified if the ETF provides meaningful risk management, tax savings, downside protection, or access to strategies that are difficult to replicate individually,” he said.
But in general, he and other experts say costs play an important role in choosing which funds to add to your portfolio.
“It makes a big difference in the outcome,” Evens says. “Fees come directly from your profits, so all else being equal, if you’re paying higher fees, you’ll earn less.”
Remember: every dollar you pay in fees is money that can compound alongside your investment. Try one of the many fund fee calculators you can find online to see how the calculation works, especially over long periods of time.
Consider an investor who earns an 8% annual return on a portfolio that contributes $1,000 per year for 40 years. At the end of the period, assuming she paid 0.03% of the annual fee, she would have paid about $3,000 in fees and ended up with about $276,000.
Increasing the annual fee to 0.71% of assets (average for 2026 ETF releases) would reduce the total to $231,000, or about $49,000 would be paid to the ETF company.
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