Active ETFs are gaining traction with investors as lower fee structures improve the odds that fund managers can outperform passive benchmarks, according to a recent Morningstar report.
The average active ETF charges 40 basis points less than the average mutual fund, giving managers a lower hurdle to clear when trying to beat their benchmarks, according to a recent report published by Bryan Armour, director of ETF and passive strategies research at Morningstar.
Only 21% of U.S. active funds survived and beat their average passive peer over the decade through June 2025, according to Morningstar’s Active/Passive Barometer cited in the report. The fee advantage matters because active managers are expected to earn the market return minus fees.
Active ETFs carry an equal-weighted average expense ratio of 0.63%, while mutual funds average 1.02%, according to the report. When weighted by assets, ETFs charge 0.40% compared to 0.58% for mutual funds.
Lower Fees Drive Results
The T. Rowe Price International Equity ETF (TOUS) highlights this cost advantage. The fund charges a 0.50% expense ratio and has attracted $815.4 million in flows year-to-date, according to ETF Database.
More than 1,300 active ETFs have launched since the start of 2024, according to the report. Beyond lower fees, active ETFs offer greater tax efficiency through in-kind creations and redemptions, which helps funds avoid triggering the capital gains distributions that plague mutual funds, according to the report.
Active ETFs also benefit from lower trading costs and insulation from buying and selling by other investors in the fund, according to the report. These structural advantages position active ETFs to deliver better success rates against passive benchmarks than their mutual fund predecessors.
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