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.”

Texas holds ’em … Assets, that is.

Earlier this month, filings revealed that a Texas sovereign wealth fund was responsible for growing State Street’s Private Credit Fund (PRIV) by $740 million in the first quarter, a high-profile example of how institutional investors are reshaping the wealth management landscape as more mutual funds, insurance companies and banks enter the rapidly growing world of ETFs. A large portion of PRIV’s growth occurred on a single day in February, when assets ballooned from $100 million to nearly $500 million, much of that stemming from the Texas fund, according to a Bloomberg report.

“Now that institutions are more comfortable with ETFs, and now that they can get that targeted exposure, we are seeing more instances of ‘Oh, hey, we want to get that exposure within the ETF,’” said Dave Mann, head of ETF product at Franklin Templeton. “It’s almost like all options are out on the table to go talk with institutions.”

Nothing New?

Institutional investors have always been a part of the wealth management landscape, and state public pension plans and hedge funds have a long history of using ETFs. What’s new is the level of involvement, which can influence holdings and strategy, as well as the increase in active fund adoption, Mann said. “Now that ETFs [are] so well ingrained as an investment strategy, there’s more opportunities for [institutions] to say, ‘OK, we will help support an active strategy, or we will help support a lower-AUM fund,” he added. Another reason for increased institutional involvement is the rise in so-called “anchor investors,” which Mann defined as those holding more than half of a fund’s assets.

According to recent data from Cerulli:

• Institutional owners have nearly doubled their ETF usage over the past five years, with assets hitting a high of $337 billion last year.
• Nearly half of institutional ETF users expect to increase their ETF allocations over the next two years.

Anchors Aweigh. But it’s not just institutional investors getting in early on certain ETFs as anchors. Although that constitutes one camp, Mann said, the other consists of institutions seeing an interesting strategy and wanting to support it after the fact. The institution will say, “‘Hey, we noticed you have this active strategy, and we’re watching it,’” he said. “Once it starts hitting some milestones or track records, sometimes an AUM threshold … institutions come in for size.”

Are you 1? Are you 2? Are you 3? Actually, never mind. We’d be here for a while.

VanEck’s ETF business turned 20 this month. Founded in 1955 by John van Eck as a mutual fund firm, the company entered the ETF market in 2006 with the launch of the VanEck Gold Miners ETF (GDX). Today, it manages more than 70 ETFs with roughly $165 billion in assets. Having entered the ETF space relatively early, John’s son and CEO Jan van Eck has watched countless funds and strategies come and go over the past two decades, some successful, others less so. Yet despite the industry’s maturity, he still sees plenty of room for innovation.

“Ten years ago, I really thought we were going to be running out of ideas,” he told ETF Upside. Instead, entirely new industries have continued to emerge, creating fresh opportunities for fund issuers. “We just launched a space ETF. That wouldn’t have existed five years ago. People weren’t thinking about data centers and returnable rockets. That inspires us. We’ve got a big pipeline.”

We caught up with van Eck on a video call to discuss the past, present and future of both the firm and the ETF industry as a whole. His desk was covered in reports and folders, one stack nearly a foot tall. “These are my macro outlooks,” he said. “I probably should just throw them all in the garbage, but every time I do quarterly investment outlooks and find good ideas, I put them in that pile.”

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