Folks often talk about how momentum in the ETF community continues to grow towards actively managed funds. After all, per Goldman Sachs and Morningstar, almost a third of fund flows in the U.S. went to active ETFs in lieu of passive peers.
Key Takeaways:
- Enthusiasm is certainly mounting towards actively managed funds, but passive ETFs still provide plenty of distinct perks within a variety of portfolios.
- One key advantage is low fees — passive funds tend to carry significantly lower expense ratios, and a recent Morningstar Study showed that passive ETFs and mutual funds saw their asset-weighted average expense ratios drop by 5.4% in 2025.
- Plenty of ETFs, like the iShares Core S&P 500 ETF (IVV), show how passive strategies can put up highly compelling results while charging competitively low fees.
Sure, there are plenty of reasons for investors to gravitate toward active ETFs. Not only is the potential of outperforming an index motivating, but active ETFs could offer higher flexibility in moments of uncertainty, such as the period we currently find ourselves in.
However, investors may not be considering how fund fees are eating into their bottom line. After all, even with a fairly effective strategy, if a fund charges an expensive fee, its investment base will see trimmed-down returns. Historically speaking, passive ETFs have excelled in this front, given that active ETFs tend to charge much higher fees.
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The Passive Fund Fee Gap Widened in 2025
Earlier this year, Morningstar released its 2026 Annual US Find Fee Study, examining how fund fees shifted across the course of 2025. Notably, the report estimated that investors saved about $6.8 billion in fund expenses across both mutual funds and ETFs, due to the average expense ratio dropping from 0.34% in 2024 to 0.32% in 2025.
While fund fees fell across the board for both passive and active funds, Morningstar noted that passive funds fell at a far more noticeable pace. Active funds saw their asset-weighted average expense ratios drop by 2.7% during 2025, while passive funds saw their expense ratios come down by 5.4% in the same period.
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This study showcases that low fees — already a significant advantage that passive ETFs offer — are only growing more potent as time passes. While active ETFs may offer some attractive perks, passive funds provide access to time-tested indexes, oftentimes with the added benefit of a low barrier to entry.
IVV: The Potency of Passive Funds in Action
The iShares Core S&P 500 ETF (IVV ) is but one of many examples of compelling passive funds with low expense ratios. With an expense ratio of only 3 basis points, this fund provides exposure to the companies within the S&P 500.
As of May 31, 2026, IVV has a year to date total return of 11.25%. Combined with a low fee, this fund is showing why passive ETFs still deserve a slot in today’s portfolio.
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