The news headlines and industry buzz suggest that ETF investors have morphed from devotees of cheap beta (looking at you, Bogleheads) to risk-enthusiasts chasing returns or income junkies seeking to maximize dividend payouts and who are willing to pay ever-higher fees for the privilege. For example, the overnight successes such as NEOS Nasdaq 100 High Income ETF (QQQI. 0.68%/year), JPMorgan Equity Premium Income ETF (JEPI, 0.35%/year), or predecessor ARK Innovation ETF (ARKK, 0.75% /year) have garnered so much media attention that one would think they top the ETF flows charts.
But as in previous years, the flows winners are not flashy. Four of 2025’s top ETFs are plain vanilla equity funds tracking the S&P 500 or the entire investable U.S. stock market; they are dirt cheap at 0.02% or 0.03% per year. The fifth is the iShares 0-3 Month Treasury Bond ETF (SGOV), a vanilla cash management vehicle with a 0.09% expense ratio that is expensive only by comparison. In other words, the Bogleheads’ dominance shows up in flows data, not headlines.
Yet the press has a point in spotlighting the actively managed funds. The upstarts and late entrants have been gaining an increasing share of flows. NEOS nearly quadrupled its assets under management (AUM) as $13 billion flowed in over the course of the year, pushing AUM to $17.9 billion from $4.6 billion, a gain of 291%. The Capital Group more than doubled its AUM, garnering $47.2 billion of new flows. In contrast, the AUM of industry leaders BlackRock and Vanguard grew by 27% and 30%, respectively.
Some trends are clear. ETFs continue to grow rapidly. Active management, once a footnote, now claims one out of every ten dollars invested in U.S. ETFs. Fixed income drew 29% of all ETF flows, well above its 17% market share at the outset of 2025. ETF issuers continue to innovate, and some of their creations catch on. The reward can be significant, as ETF success can come from scale, as it does at BlackRock and Vanguard, or from premium pricing, as at First Trust.
Some trends are less clear. Premium pricing is often fleeting, as investors continue to favor low-cost products in nearly every market segment. Fine parsing of the data is needed to properly identify competitor ETFs. Counter examples regularly pop up and challenge the fee-race-to-the-bottom narrative.
The trends are contradictory enough that it’s fair to wonder if the Bogleheads, devotees of cheap, broad-based, vanilla ETFs exemplified by Vanguard, will remain dominant.
Let’s take a look at the data.
The U.S. ETF industry continues to grow, with a 30% increase in AUM over 2025. About half of that, 14.3%, came from inflows. The rest was the result of rising stock and bond markets.
The chart below details a decade of rapid growth for the U.S. ETF industry.
New investment, or inflows, has been a major industry driver. The chart below shows both the historic flow levels and the asset class breakdown.
In 2025, $1.48 trillion flowed into U.S. ETFs. It is hard to remember that just 12 months ago the industry celebrated its first trillion-dollar year.
Data note: In December 2025, FactSet re-classified defined outcome (“buffer”) ETFs from the primary asset classes to alternatives. The chart above incorporates this change in 2025 data only; prior years are not restated.
All asset classes except leverage/inverse, jointly called “geared,” hit new flow records. Equity flows increased 20% over 2024 levels; fixed income 46%. Commodities had a breakout year with over $56 billion in net new flows thanks to renewed interest in gold.
ETFs now comprise around 30% of all public investment funds in the U.S., up from 18% at the end of 2020, as investors abandon actively managed mutual funds in favor of ETFs and, in the 401(k) space, collective investment trusts.
Some investors made a clean break, switching from mutual funds to ETFs and from active to passive management. Others continued to favor active management, changing wrappers but not philosophies. Active flows are coming alongside very health flows to passives, as illustrated in the two charts below that parse flows by broad strategy group.
FactSet Funds defines four general types of investment strategies.
Plain vanilla aims to replicate a swath of the market, broad or narrow. This is the classic approach to passive management.
Strategic, sometimes tagged as smart beta, uses academically grounded research elements to select and/or weight securities. Strategics include value, growth, dividends, fundamental, and factor investing. Strategic funds, while more complex than plain vanilla, are nonetheless passively managed.
Idiosyncratic ETFs share the complexity of strategics but lack academic rigor. They can employ simple equal weighting, single-exchange selection, or ESG, which aims to correct economic externalities. Idiosyncratics are passively managed.
And then there’s active, in which humans select and weigh the portfolio securities.
Passive ETF flows hit a new record of $1.04 trillion, with passive equity garnering $670 billion, and fixed income escaping from the approximately $175 billion level (where it sat between 2020 and 2024) to reach $260 billion.
The simplest and historically most popular passive strategy, plain vanilla ETFs captured $860 billion, or 76% of the passive flows, as interest in strategic ETFs fell to 18% of passive flows.
Vanilla ETFs, beloved of the Bogleheads, are doing superbly. At the same time, active ETFs are growing like crazy, elbowing their way into the heart of the U.S. ETF landscape. Among equity ETFs, vanilla posted an organic growth rate of 10.2%; active reached 51%, albeit starting from a much lower base. In fixed income, the rates were 17.3% for vanilla and 58% for active. Vanilla is quite healthy; active is coming up quickly.
In 2025, active market share rose from 8.7% to 10.3%, as actively managed ETFs captured 30% of all flows. Investors allocated 27% of equity flows to active ETFs and topped that with 39% to active fixed income ETFs. In equity, active captured market share previously directed to strategic (“smart beta”) products. In fixed income, active has been displacing vanilla ETFs.
The charts below illustrate the shifts in market share.
By December 31, 2025, active ETFs comprised 8% of equity and 21% of fixed income ETF markets. Five years ago, those numbers were just 1% and 10%.
Active ETFs are cheaper than their mutual fund counterparts, but more expensive than passive ETFs. As active increases its ETF market share, trends in ETF fees have become murkier. Overall U.S. ETF fees are now increasing after bottoming in 2023. Within competitive market segments, however, fees largely continue to decline, though there are pockets of fee insensitivity.
At the headline level, ETF consumers have become less price sensitive, as illustrated in the chart below, which includes all 4,868 ETFs trading on U.S. markets as of December 31, 2025, on an asset-weighted basis:
The asset-weighted average of U.S. ETF costs is now 0.006% higher than it was in December 2023.
That said, cost insensitivity is hard to find. A breakdown of asset-weighted fees by asset class and strategy group shows that price increases are confined to active equity ETFs.
The chart below highlights the uptick in active equity ETF fees and the continued cost drop in their passive counterparts.
Bond ETFs show no such trend, except to a small degree in the 36 idiosyncratic (largely ESG) ETFs that jointly hold less than 1% of all bond ETF AUM.
Average expense ratios change in two ways: asset manager fee adjustments and investor preference. In 2025, fee adjustments pushed fund expenses down by 0.3 basis points on an asset-weighted basis. Therefore, the upward change in average fees had to come from investor behavior.
An analysis of the expense ratios of ETFs that gained or lost market share shows that investors continue to prefer cheaper ETFs across strategy groups—except those actively managed equity products. The chart below shows the trends and the size of the gap.
Read this chart thusly: Vanilla equity ETFs that gained market share cost, on average, 7.9 basis points; those that lost market share had significantly higher fees of 11.3 basis points.
The gap is particularly stark in strategic equity, where market-share winners cost 14 basis points and losers cost 36. Notably, strategic equity funds that folded had cost 47 basis points.
Active equity ETF investors appear to have deliberately chosen to overpay, as ETFs that gained market share cost 43 basis points, while those that slipped cost just 36.
But are active equity ETF investors actually bucking the pricing trend? Maybe not.
The upwards drift came from two types of active strategies: options income (like QQQI and JEPI), where active winners cost 63 basis points vs. 39 for losers; and value/growth, where winners’ costs averaged 43 and 46 bps, respectively, vs. 22 and 38 for the losers.
Those strategies are hardly isolated within active management—they have passive counterparts. The combined set of active and passive options income ETFs showed the expected investor preferences, with ETFs that gained market share costing 57 basis points and those that lost it costing 62.
The same held for growth ETFs, with winners costing just 10 bps and losers nearly double at 19 bps.
Value ETFs were the exception, with winners costing 23 basis points and losers just 13, likely attributable to outflows of $1.3 billion from iShares Russell 1000 Value ETF (IWD) and $1.5 billion from iShares Russell 2000 Value ETF (IWN).
It is hard to find a clear example of ETF investors preferring high-cost products over low-cost ones. Even the most prominent 2025 case of NEOS Investments’ SPYI and QQQI elbowing out JPMorgan’s JEPI and JEPQ has a clear cost-saving rationale. NEOS’s index options have preferential tax treatment (under section 1256) that can save investors far more than the 0.33% fee differential.
The driving investor preference turns out to be for product type—namely, active equity. Now, the migration from mutual funds to ETFs and the associated jump in active market share has pushed headline fees upward.
The fee/revenue dominance of active management appears clearly in the charts below, which illustrate both the overall fee level by asset class and the strategy group cost attribution for equity and fixed income ETFs.
At the issuer level, we see the growing role of active management in the difference between starting market share and the percentage of flows captured by each asset manager (the flows gap). In that regard, 2025 was a miserable year for BlackRock and State Street, which posted flows gaps of -4.7% and -8.6%. For JPMorgan Chase and The Capital Group it was an excellent year, as both firms gained market share via flows gaps of 2.6% and 2.4%. As a result, BlackRock and State Street lost 0.77% and 1.26% of market share, respectively.
Vanguard’s position was little changed with just -0.03% of flows gap and 0.07% of market share slippage. As a result, Vanguard ended 2025 just $138 billion away from overtaking BlackRock to ascend to the top of the ETF leaderboard.
Vanguard charges, on an asset-weighted average basis, just 0.04%/year for its ETF suite as of December 31, 2025. Its closest competitor, Charles Schwab, weighed in at 0.07%. Vanguard and Schwab’s investors continue to benefit from efficiency gains; many of the funds they own are all but free to hold.
BlackRock, at 0.16%, has much to overcome in making its case to the Bogleheads and to the active aficionados. Although BlackRock’s funds comprised 32% of all active ETFs at the outset of 2025, they attracted just 3.6% of all active flows. Vanguard, with a starting 30% active ETF market share, attracted 40% of the active flows.
The question going forward is: Who will run the show? Only time will tell whether the Bogleheads and low-cost investment fans push Vanguard to the top or whether the wave of active management devotees propel a firm like JPMorgan to overtake incumbents. Likewise, it remains to be seen whether the ETF story becomes fragmented with multiple camps of investors, each living in their own bubbles.
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