Expense ratios for exchange-traded funds (ETFs)—the measure of how much an investor must pay annually in order to invest in the fund—have trended downward recently. Passively managed funds had an average expense ratio of roughly 0.15% as of 2023, driven down in part by a highly competitive space in which providers race to undercut one another to provide cheaper and cheaper access.
Actively managed funds, for which fund managers typically engage in a more hands-on approach to portfolio management, usually have higher fees than passive funds, although these rates have also declined. Still, with a plethora of inexpensive passive options available, investors expect active funds to perform notably well—or to have a unique and specialized strategy unavailable elsewhere—in order to compete.
