Above the Fray is a weekly article providing timely investment insights on current market events and trends.
ETFs Can Get Expensive
Many investors think of ETFs as low-cost alternatives to mutual funds. This is likely because, up until the past few years, the vast majority of ETF assets were invested in traditional broad-market index strategies. But as Bob Dylan said, the times they are a-changin’. And investors’ preconceived notions of what ETFs hold may need to be updated as well.
Active strategies have captured 32% of the ETF flows over the one year ending September 30, 2025, despite representing just 10% of total ETF assets under management. Many of these flows were directed to niche categories ranging from downside protection to levered, individual stock positions. The wide gamut of active products is reflected in higher expense ratios. The median for active ETFs is almost twice as high as that of index ETFs, at 0.70% versus 0.39%. And if 2025 is anything to go by, that number could be trending up as niche categories grow in popularity.
The takeaway here is that investors should think of the ETF structure for what it is: a wrapper that may not tell you much about the underlying investments. The variety of strategies available as ETFs is expanding and so, too, will the range of characteristics across the landscape.
exhibit 1
Net Expense Ratios (%)
As of September 30, 2025
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ETFs trade like stocks, fluctuate in market value, and may trade either at a premium or discount to their net asset value. ETF shares trade at market price and are not individually redeemable with the issuing fund, other than in large share amounts called creation units. ETFs are subject to risk similar to those of stocks, including those regarding short-selling and margin account maintenance. Brokerage commissions and expenses will reduce returns.
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