Passive ETFs’ fee cuts saved investors $6.8B in 2025

Morningstar’s 2026 Annual US Fund Fee Study found that passive ETFs and mutual funds reduced asset-weighted expense ratios by 5.4% in 2025. The report said the industry-wide average expense ratio fell from 0.34% in 2024 to 0.32% in 2025, which Morningstar estimated translated into roughly $6.8 billion in lower costs for investors during the year.

The study measured fees across U.S. mutual funds and ETFs for the 2025 calendar year. Passive funds registered a larger decline in asset-weighted average expense ratios than active funds, with passive funds down 5.4% and active funds down 2.7% over the same period.

The report noted that asset-weighted averages give more influence to larger funds, so price changes among big, low-cost ETFs had an outsized effect on the overall industry figures. Morningstar attributed the reported savings to fee reductions by fund providers and the growing asset scale of low-cost passive products.

Data cited in the study showed that investor flows were not all toward passive products. Nearly one-third of U.S. fund flows moved into active ETFs during the period covered, reflecting interest in active strategies alongside continued demand for low-cost passive options.

Expense ratios are the annual fees funds charge to cover management and operating costs, expressed as a percentage of assets. The report included examples of low-cost passive options, such as the iShares Core S&P 500 ETF, which carries an expense ratio of 0.03% and had a year-to-date total return of 11.25% through May 31, 2026.

The study placed the 2025 fee changes in the context of ongoing fee compression in the ETF market and documented the relative movement in costs between passive and active fund structures.