Fee Wars Are Changing Which ETFs Go to Market. Here’s How

The biggest ETFs are usually pretty cheap. Launching one isn’t.

The costs associated with broad market index ETFs are rising, putting pressure on providers and limiting the number of new, large index funds, according to recent research from Morningstar. The so-called “fee wars,” in which fund managers are putting downward pressure on each other to provide the lowest fees possible, have fed into another trend: managers venturing into new areas to charge higher prices and stay competitive.

“For smaller or upstart ETF issuers, they’re largely not able to compete with the economies of scale of a Vanguard or iShares,” said Morningstar analyst Zachary Evens. “So they’re instead launching products in categories where those large incumbents don’t have current offerings,” he explained.“If a firm is charging 70 or 80 basis points, you need fewer assets to make that product viable.”

That S&P’s Taken

Smaller issuers are increasingly going where the bigger players won’t: According to Morningstar, a large portion of funds launched last year (322) fell into the trading-leveraged equity category — funds that tend to have higher fees, meaning issuers can reap more revenue from them. “The trading-leveraged equity category kind of blew every other category out of the water,” Evens said. The trend makes sense from an economic perspective, he added, since the broad index market is already highly saturated. “There’s a reason why nobody’s launching any new S&P 500 ETFs,” he said. “VOO, IVV, SPY and SPYM, they own pretty much the entire market. And each of them charges three basis points or less, except for SPY.”

According to the Morningstar report:

• The three most common types of ETFs launched in 2025 were trading-leveraged equity funds, derivative income products and defined outcome strategies.
• The average fee of new ETFs reached 0.74% in 2025, its highest ever.

Barbell ETF Press. The Vanguards and iShares of the world can afford to launch and maintain cheaper funds because they have such large economies of scale. The current landscape looks like a barbell, Evens said, with a ton of assets and interest on the cheap, passive side, but increasing interest in the expensive side — categories such as derivative income, defined outcome and active ETFs more broadly. Still, achieving comparable success with the new funds isn’t a given, since investors still overwhelmingly prefer the cheaper options.

“Fee revenue is the lifeblood of asset management,” Evens said. “For relatively commoditized products like an S&P 500 ETF … investors are going to choose the cheapest one, all else equal.”