For a generation, the ETF industry operated on a single, elegant thesis: cut fees, win flows. That thesis still holds, but it no longer tells the whole story.
New data from Tidal Financial Group1, drawing on Bloomberg Intelligence and Morningstar Direct, documents a meaningful structural shift in how investors are allocating within the ETF universe. The implications reach well beyond product strategy and into the very question of what investors are actually asking their portfolios to do.
The Fee Floor Is Still There. But It Is No Longer the Ceiling.
The headline number is striking. In 2025, only 50% of ETF flows went into funds charging 10 basis points or less, the lowest share in years and down sharply from roughly 65% in 2021. That is a material compression in the share of flows captured by the cheapest products, and it deserves interpretation.
Tidal is careful not to misread it. Investors are not abandoning low-cost products. Rather, the ETF tent itself has expanded, pulling in a new wave of strategies built around income generation, downside mitigation, and derivatives-based outcomes that are not typically available at the lowest fee tiers. The race to zero has not reversed. It has simply been joined by a different race, one toward specificity of outcome.
Active's Quiet Takeover of the Product Shelf
The data on active ETF penetration is equally instructive. Active ETFs now represent 51% of all ETF products on the market, capture 33% of industry flows, and account for 26% of revenue, even though they represent just 10% of total AUM. That revenue-to-AUM imbalance is notable: active strategies are punching significantly above their weight in fee generation relative to their asset footprint.
Asset managers appear to be reading the same signal. Active ETF launches have climbed from just 38% of all new issuance in 2018 to 87% so far in 2026. Last year alone, +890 active ETFs came to market versus only +170 passive launches. That is not incremental drift. That is a wholesale reorientation of product development priorities across the industry.
The product shelf confirms it. Only about 6% of the roughly 5,000 ETFs on the market today charge under 0.10%. Nearly 45% sit between 0.50% and 1.00%, and another 16% charge more than that. Fee tolerance, it turns out, is a function of what the investor is buying.
What They Are Buying: Outcomes, Not Alpha
Many of the strategies drawing these flows are not conventional active management. Tidal notes that industry analysts have described the new wave of active as an evolution into buffer ETFs, covered call strategies, smart beta, and ETF model portfolios. The category driving the largest absolute inflows makes that concrete: the derivative-income category saw the most net inflows of any ETF category in 2025.
BlackRock's forward projection reinforces the trajectory. Outcome-oriented ETFs, including covered call and buffer products, could reach $650 billion in assets by 2030. That estimate, current as of June 2025, suggests the demand is not a temporary rotation but a durable evolution in investor preference.
The Largest Issuers Are Already There
The majors have not been caught flat-footed. Tidal's data on the active ETF share of key issuers' lineups traces a decisive directional move. JPMorgan Chase grew the active share of its ETF lineup from 31% in 2020 to 63% in 2025. State Street moved from 9% to 28% over the same period. Even Vanguard, the institution most associated with the low-cost passive movement, expanded its active ETF share from 7% to 17%.
The migration away from the mutual fund structure adds essential context. From 2019 through late 2024, investors moved more than $600 billion into active ETFs while pulling nearly $2 trillion out of active open-end mutual funds. The strategy is not being abandoned. The wrapper is changing. That dynamic pushed total U.S. ETF flows to a record ~$1.5 trillion in 2025, surpassing the prior year's record by ~$350 billion.
The Synthesis
Tidal's closing observation is the sharpest framing in the piece. Investors are no longer choosing between cheap beta and expensive active in the traditional sense. They are increasingly reaching for strategies that deliver specific outcomes, generate income in volatile markets, or provide structured protection, and appear willing to pay for that specificity inside the ETF wrapper.
That is the essential divergence from the prior decade's narrative. The investor demand function has changed. Outcome specificity, income resilience, and downside management are increasingly what investors are asking for. The ETF wrapper, with its tax efficiency and intraday liquidity, has proven an effective delivery vehicle for precisely those characteristics.
Five Key Takeaways for Advisors and Investors
1 Fee sensitivity is context-dependent. Investors are not indifferent to cost, but they are increasingly willing to pay for outcome specificity. The frame should be value for fee, not fee level alone.
2 Outcome-oriented ETFs are the fastest-growing category. Derivative-income strategies led all ETF categories in net inflows in 2025. Buffer and covered call products warrant serious consideration in client portfolio construction conversations.
3 The active vs. passive binary is obsolete. Active, in this context, increasingly means structured outcomes and rules-based complexity, not discretionary stock selection. The terminology requires updating.
4 The mutual fund exodus is structural, not cyclical. With nearly $2 trillion leaving active open-end mutual funds while active ETFs gained $600 billion, the delivery vehicle shift is durable. Advisors still holding clients in legacy active mutual fund structures should revisit the comparison.
5 The product landscape has broadened materially. With 5,000 ETFs now on the market and 87% of 2026 launches being active, product due diligence and selection discipline have never been more important. The breadth of choice is an asset only if it is navigated deliberately.
Footnote:
1 Tidal Financial Group. "The Race to Zero Is Losing Ground." Tidal Financial Group, 1 May 2026, tidalfinancialgroup.com/the-race-to-zero-is-losing-ground/.
