If you invested in a US equity ETF in 2009, you likely paid around 0.306% per year in fees, roughly $306 on every $100,000 invested. By November 2023, Bloomberg Intelligence data showed that figure had fallen to 0.171%, before rising again this year for the first time, reflecting a dramatic decline largely driven by relentless competition among the industry’s biggest asset managers.
It is important for investors to understand ETF fees, as they directly impact overall investment returns over time. The latest wave of ETF innovation has led to higher fees across certain segments of the market. However, this is not necessarily negative, as many of these newer strategies provide access to sophisticated investment approaches and niche opportunities that were once largely reserved for hedge funds and institutional investors.
This study focused on US and GCC-listed ETFs and does not include Europe and Asia.
The Battle of the Titans in the Race to the Bottom
Vanguard, built on founder John Bogle's philosophy that every dollar paid in fees is a dollar lost to investors, operates as a client-owned firm with no profit motive on fees. BlackRock's iShares division responded by slashing prices on its flagship index products to retain market share. Other issuers like State Street followed. The result was the most sustained fee war in the history of asset management.
The race to the bottom in ETF fees accelerated over the past decade. Average asset-weighted ETF fees declined from approximately 0.31% in 2009 to just 0.17% by the end of 2024. By early 2026, that figure had ticked back up to 0.18%, the first increase in over a decade. The reversal is being driven in part by a surge in higher-cost new launches: according to Bloomberg Intelligence, the average fee on newly launched ETFs climbed to a record 65 basis points in 2025, more than double the overall industry average, as leveraged, crypto, and actively managed products flooded the market.
Asset-weighted fees are calculated by multiplying each ETF’s expense ratio by its assets under management and aggregating the results across the industry. The decline would likely have been even steeper had ETF innovation not introduced a growing number of higher-fee products, including thematic, leveraged, and derivatives-based strategies, many of which charge more than 75 basis points.
Today, the industry is witnessing a growing divide between ultra-low-cost beta ETFs and higher-cost specialized strategies. On one side are products like the VOO and IVV, both charging just 0.03% annually while collectively holding a substantial share of global ETF assets. On the other side are active ETFs, leveraged and derivatives-based ETFs, where fees can reach 1% due to the complexity and active management involved.
In practical terms, an investor allocating $10,000 to a low-cost S&P 500 ETF may pay as little as $3 annually in fees, compared to more than $100 per year for certain leveraged, active, or derivatives-based ETF strategies. Despite the rapid growth of specialized ETFs, broad index products continue to dominate the industry. For example, the three largest S&P 500 ETFs from Vanguard and BlackRock’s iShares platform account for roughly 16% of total global ETF assets, while the remaining 4,000+ ETFs collectively represent the other 84% of the market.
Fee compression has also reshaped the mutual fund industry. According to Morningstar’s 2026 Annual U.S. Fund Fee Study, investors saved nearly USD 6.8 billion in fund expenses in 2025 as continued flows into lower-cost products pushed the asset-weighted average expense ratio for U.S. mutual funds and ETFs down to 0.32%, compared to 0.80% in 2006. Morningstar noted that fund fees remained near historic lows, driven by investor preference for cheaper products, intense competition among asset managers, and the continued rise of fee-based advisory models that increasingly favor low-cost ETFs.
Why Are ETF Fees Rising Again After a Decade of Decline?
After more than a decade of relentless fee compression, the decline in ETF fees appears to be slowing and in some areas, beginning to reverse. According to Bloomberg Intelligence ETF asset-weighted data, average ETF fees reached a low of 0.171% in November 2023 before rising for the first time in 2026 to 0.18%. The shift suggests that the rapid growth of higher-fee thematic, leveraged, and derivatives-based ETFs is beginning to outweigh the downward pricing pressure created by intense competition among passive fund issuers.
Morningstar’s broader fund-fee data, which also includes mutual funds, shows a similar trend. While overall fees continue to edge lower, the pace of compression has slowed materially, with asset-weighted average fees declining only modestly from 0.34% in 2024 to 0.32% in 2025. Morningstar noted that fund fees are “not following a straight line down.
One reason is that fees on major passive index funds are approaching a practical floor. Many of the largest ETFs already charge less than 0.05%, leaving limited room for further reductions in headline averages. At the same time, innovation has been driving the ETF industry with many new launches focused on active ETFs and alternative strategies that come with significantly higher expense ratios.
This dynamic has effectively created a two-tier ETF market. On one side are ultra-low-cost passive ETFs, where fierce competition among issuers has pushed fees down to just a few basis points. On the other side is a rapidly growing segment of premium active and strategy-based ETFs, where investors pay materially higher fees in exchange for specialized exposure, portfolio management, income strategies, leverage, or access to more complex investment themes. As a result, while overall ETF fees remain near historic lows, the dramatic fee compression that defined the industry over the past decade is beginning to moderate.
Fee Breakdown Across ETF Categories
The US ETF market now encompasses more than 4,000 funds managing approximately $14 trillion in assets, yet that breadth masks a highly uneven fee landscape. The vast majority of assets remain concentrated in a relatively small number of broad-market, low-cost index ETFs. It is core ETFs, simple equity and fixed income index trackers from Vanguard, BlackRock, and State Street that continue to attract the lion’s share of investor flows, and it is this concentration that has kept the overall asset-weighted average fee near historic lows. As you exit the core category, however, fees rise quickly and steeply.
Of the 4,000-plus US-listed ETFs, 393 are thematic funds targeting specific trends such as artificial intelligence, clean energy, cybersecurity, or genomics, collectively managing over $256 billion at an average expense ratio of 0.63%. Leveraged equity ETFs, which use derivatives to deliver two or three times the daily return of an index, command a median fee of 0.96%, and that’s before accounting for hidden financing costs embedded in derivative structures that don’t appear in the stated expense ratio at all. Some ETF fees can reach well above 1%.
Active ETFs represent one of the broadest and fastest-growing categories in the industry, encompassing everything from traditional stock-picking funds and mutual fund conversions to derivatives-based income strategies such as covered call and buffer ETFs. Active ETFs have garnered significant flows in recent years and are now among the fastest-growing segments by both count and assets, with fees typically ranging from 0.35% to well above 1% depending on strategy complexity.
Core ETFs, by contrast, continue to dominate total assets and push the industry-wide average lower, but their gravitational pull on overall fees is gradually being offset by the sheer volume of higher-cost product launches.
ETF Fees in the GCC
The GCC ETF market is growing rapidly but remains in its early stages relative to its global peers. As of the end of 2025, 36 ETFs were trading across GCC exchanges, according to Nukoud’s Q1 2026 GCC ETF Report. The UAE leads with 20 ETFs (approximately $337 million in AUM), followed by Saudi Arabia with 13 ETFs (approximately $2.6 billion in AUM), making Saudi Arabia the dominant market by assets despite having fewer listed products. The UAE’s total was boosted by the December 2025 cross-listing of two US-listed KraneShares ETFs on the Abu Dhabi Securities Exchange (ADX). To put the GCC’s scale in perspective, the US market lists over 4,000 ETFs managing $14 trillion; the entire GCC market represents a fraction of what a single large US ETF might hold.
In terms of categories, GCC-listed ETFs span a narrow but expanding set of strategies. The largest segment consists of domestic equity ETFs tracking local indices such as the Tadawul All Share Index (TASI) in Saudi Arabia and the ADX General Index in the UAE. Alongside these are fixed income and Sukuk ETFs, gold ETFs (which surged 61% in 2025), and a growing number of thematic and cross-listed products offering exposure to regional and global markets, including Egypt EGX-linked ETFs. The category mix remains far simpler than what is available in the US or European markets, where active, leveraged, and derivatives-based ETFs constitute a substantial share of the product shelf.
On fees, GCC-listed ETFs are broadly competitive with mid-tier international products but are not yet at the ultra-low-cost levels of the major US passive giants. Domestic equity ETFs in the region typically charge between 0.15% and 0.45% annually, while Sukuk and fixed income ETFs tend to fall in the 0.25% to 0.50% range. Thematic and cross-listed products can command fees closer to 0.50% to 0.75%. By comparison, the cheapest US S&P 500 ETFs, VOO and IVV, charge just 0.03%, while broad emerging-market ETFs average around 0.10% to 0.20%. The fee gap reflects the GCC market’s smaller scale, thinner liquidity, and higher operational costs relative to the hyper-competitive US market, where decades of fee wars have compressed pricing to near-zero on core products.
Bottomline
The ETF industry has split into two very different worlds. In one, broad-market passive investing continues to offer some of the cheapest financial products ever created, with many index ETFs charging less than 0.05% annually.
In the other, the rise of active, thematic, and strategy-based ETFs has created a premium ETF segment in which investors pay significantly more for complexity and specialized exposure.
Morningstar’s 2026 Annual US Fund Fee Study shows that investors continue favoring low-cost funds, saving an estimated USD 6.8 billion in fund expenses in 2025, while also noting that “mutual fund and ETF fees remained near historic lows in 2025.
