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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 milestone moment for what has become the standard-bearer for an industry that has trended toward cheaper, passive strategies.
VOO, like many of the funds that anchor investor portfolios, merely aims to track the performance of a major market index, rather than trying to outperform it. And because there’s no star fund manager at the helm picking stocks, the fund is inexpensive to manage, charging shareholders just 0.03% of assets per year.
But index funds’ ubiquity doesn’t mean that ETF issuers, or investors, are giving up on active management. Over the past two calendar years, and so far in 2026, some 8 in 10 new ETF launches were active funds, according to Morningstar.
Of the $866 billion in investor cash that flowed into U.S. ETFs through early June this year, $313 billion — 36% — went into active strategies, according to investment research firm TMX VettaFi.
“Active management has arrived in full force in the ETF landscape,” says Cinthia Murphy, director of research at TMX VettaFi. “It’s a big trend in product development and investor demand.”
So much so, in fact, that after declining for years, the average asset-weighted expense ratio for ETFs bumped slightly higher in the last year, according to FactSet.
“That’s purely a symptom of higher-cost launches,” says Zachary Evens, a manager research analyst for Morningstar.
What to know about active ETFs
Active ETFs have been around for years, and in the early days, many of them followed the same model as actively managed mutual funds — with a manager attempting to construct a market-beating portfolio.
“Your old-school, stock-picking Peter Lynches of the world, that kind of active management in the ETF market has been really slow to get traction, because low-cost passive or index investing does so well,” says Murphy.
Indeed, last year, 79% of large-company U.S. stock fund managers failed to keep up with the S&P 500, according to data from S&P Dow Jones Indices. That marked the 16th year in a row that more than half of active managers who use the S&P as a benchmark lost to the index.
But many of the new active products aren’t helmed by a high-priced manager and don’t look to outstrip a market bogey, experts say.
“They’re not what you might picture when you think of an actively managed fund,” says Evens. “Instead, a lot of these are in options categories, like trading tools categories, or derivative income or defined-outcome.”
Essentially, he says, many of these funds automatically trade options or other types of derivatives to deliver tailored results for particular types of investors. Some funds are geared toward short-term traders looking to get an amplified return on a particular stock or sector. Others provide a boosted yield on stock portfolios held for income. Still others employ a strategy that caps shareholders’ short-term losses, but that offers limited upside as well.
These are unlikely to make sense as core holdings, Evens says, but it’s worth talking with a financial professional to see if they could be useful as tools for investors in very particular situations.
“Investors should consider their own objectives over a timeframe with what a product is offering, and of course, the cost of that product — if the price they’re paying is worth the value the product provides.”
Examine fund fees before investing
If you do choose to add an active strategy to your portfolio, expect to pay up for it. As of year-end 2025, the average passive stock ETF came with an annual fee of 0.14%, compared with a 0.44% charge among active stock ETFs, according to Morningstar.
Of the ETFs launched this year through the end of May, more than 3 in 5 carried annual expenses of at least 0.5%, and more than a fifth charged at 1% or more, according to Morningstar. The average annual fee among all new ETFs: 0.71%.
For some investors, a higher price tag could be worth it, says Mike Casey, a certified financial planner with AE Advisors in Alexandria, Virginia.
“A slightly higher fee may be justified if the ETF delivers meaningful risk management, tax efficiency, downside protection or access to strategies that are difficult to replicate individually,” he says.
In general, though, he and other experts say that cost plays a crucial role when selecting funds to add to your portfolio.
“It makes a material difference to your outcome,” Evens says. “Fees come directly out of return, so if you’re paying a high fee, all else equal, you will earn a lower return.”
Remember: Every dollar you pay in fees is money that could be compounding alongside your investments. Play around with one of the many fund fee calculators you can find online, and you can see how the math works out, especially over long periods.
Consider an investor who earns an 8% annualized return on a portfolio to which she contributes $1,000 per year over 40 years. At the end of the period, assuming she paid 0.03% in annual fees, she’d wind up with about $276,000, having paid about $3,000 in fees.
Bump the annual fee to 0.71% of assets — the average among 2026 ETF releases — and the total drops to $231,000, with about $49,000 going to the ETF company.
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