US Fund Fees Fell Again in 2025. So Why Do New Funds Cost More?

The Nasdaq closed at a record as tech shrugged off the highest 10-year yield in a year.

The quick scan: Monday was a broad green day. The Nasdaq Composite rose 1.05% to a record close, passing its 22 September high, and the S&P 500 gained 0.66%. The Dow lagged but still finished higher. Deal news helped: Schneider Electric agreed to buy software firm PTC for $22.6 billion, and PTC shares soared. Meanwhile, the bond market kept selling off at the long end, with the 10-year Treasury yield setting a new 52-week high.

S&P 500: +0.66% to 7,773.95 – a broad gain led by tech; the index still sits below its 52-week high of 7,816.70
Dow Jones: +0.18% to 51,267.90 – up 90.94 points after dipping to 50,862.85 early in the session; the laggard of the three
NASDAQ: +1.05% to 27,477.31 – a record close on mega-cap tech strength, passing the previous high set on 22 September; SpaceX rose more than 7%.

What's driving it: Two forces pulled in opposite directions. Friday's soft jobs report – just 29,000 jobs added in September, with unemployment edging up to 4.2% – eased fears of another Fed rate hike, and growth stocks rallied on that. The bond market did not follow. The 10-year Treasury yield rose 3.8 basis points to 5.315%, and the 20- and 30-year yields also set 52-week highs, while the 2-year yield edged lower. Capital.com's Daniela Hathorn called it "an unusual divergence": growth stocks rallying while the risk-free rate used to value them stays exceptionally high. Services inflation added to the unease, with the ISM services prices index climbing to 74. Wednesday's Fed minutes are the next test.

Bottom line: Markets are pricing two stories at once: a Fed that may not need to hike again, and long-term borrowing costs that keep climbing. Nobody knows which one wins. For L-Plate Retirees, that uncertainty is the point of today's article. Returns are a forecast; a fund's fee is a certainty you can check tonight. When the outlook is this murky, controlling the cost you know beats guessing the market you don't.

Fund Fees Keep Falling. So Why Are the Shiny New Funds Charging More?

The scoop: For every $100 sitting in a US mutual fund or ETF last year, the average investor paid 32 cents in annual fund expenses.

That is the headline from Morningstar's 2026 US Fund Fee Study, summarised by Morningstar's Zachary Evens in May. The asset-weighted average expense ratio of US open-end mutual funds and ETFs fell to 0.32% in 2025, a 5.6% decline from 2024. Morningstar estimates that the drop saved investors $6.8 billion.

It was not a one-off. Every broad measure of US fund fees declined again in 2025. Fund companies made more fee cuts than fee hikes. Investors, given the choice, overwhelmingly preferred cheap, passive funds.

So far, so cheerful. Then look at what is coming through the door.

One disclosure before we go further. Morningstar sells fund data, ratings and research, and it runs investment businesses of its own. Fee transparency is good for its brand. That does not make the numbers wrong, but this is one firm's study, and we could not find an independent second source checking it.

Two ways to measure a fee

The asset-weighted average counts each fund in proportion to the money invested in it. A giant, cheap fund holding billions counts for a lot; a tiny, expensive one barely registers. This is the closest thing to what investors actually paid. It can fall for two reasons: funds cut their prices, or investors move their money to cheaper funds. In 2025, both happened.

The equal-weighted average counts every fund once, regardless of size. This reflects how the industry prices its products – the whole shelf, popular or not.

For actively managed US equity funds, the gap is striking. Asset-weighted, investors paid 0.58%. Equal-weighted, the typical fund on the shelf charges 1.00%.

On every $100,000 invested, that is the difference between $580 and $1,000 a year, every year, whether the fund has a good year or a bad one.

Investors' money has crowded into the cheaper end of the shelf. The shelf itself is still stocked with plenty of expensive options, waiting for anyone who does not check the price tag.

Where the money went

Pricey active funds were the epicentre of outflows in 2025.

ETF investors still pay less, on average, than mutual fund investors, though Morningstar notes that the gap is narrowing.

Semibundled and unbundled share classes also stayed popular with financial advisers. These are versions of a fund that strip some or all of the sales and advice costs out of the fund's own fee, so the adviser is paid separately. The fund's expense ratio looks lower, but it is only one layer of what the investor pays in total.

The cost of owning a fund is one of the few things an investor knows in advance. Returns are a forecast. Fees are a certainty.

The new arrivals

New funds are expensive, and cheap launches are increasingly rare. Of the 1,131 ETFs launched in 2025, 950 were actively managed. That is about 84% of all new ETFs. Morningstar's own view is that many of these are not very active at all. In other words, the label says active, but the portfolio may not stray far from the market it is measured against.

The high-fee launches cluster in particular corners of the market. Two categories stand out: trading-leveraged equity funds, which are designed to amplify a market's daily moves, and derivative income funds, which use options strategies to generate payouts. Many come from smaller providers using white-label ETF firms – businesses that handle the legal and operational plumbing so a smaller brand can put its name on a fund.

Some of the largest, best-known fund providers do not offer leveraged-equity funds at all.

And these categories have not seen the fee competition that has driven prices down elsewhere.

For a retiree, one of those labels has an obvious pull. "Income" is a lovely word when you are living off a portfolio. A fund that promises a steady stream of payouts speaks directly to the question that keeps many of us up at night. That is exactly why it pays to understand the mechanics, and the cost, before the label does the persuading.

Why cheap tends to win

Evens is sceptical that the wave of expensive novel ETFs will reverse the long-term decline in fees. His line is short: "History shows that cheap funds endure."

A fund's fee is charged every year, in good markets and bad. It does not need a forecast to be right. A new, complicated, expensive fund needs its strategy to work well enough, for long enough, to cover its higher costs before it adds anything for the investor. Some will manage it. The study's evidence is that money, over time, keeps drifting towards the funds that do not need to.

For anyone drawing an income from a portfolio, there is one more wrinkle. The fee comes out of the same pot as the withdrawals. Every dollar it takes is a dollar that is no longer there to fund the next year of living.

What this study cannot tell you

These are US figures. They say nothing about fund costs in Singapore, Malaysia or anywhere else, and they should not be read as a guide to what you pay locally.

They are averages. Your fund's fee may be well above or well below them.

A low fee does not guarantee a good fund, and a high fee does not prove a bad one. What the fee does guarantee is the hurdle the fund has to clear before you see a cent of benefit.

And this is not a recommendation to buy or sell any fund. It is a prompt to know what you are paying.

The good news is that, on average, investors are paying less again. The less comfortable news is that the newest, most exciting products on the shelf are often the ones that still charge like it is a different decade.

Actionable takeaways for L-Plate Retirees:

• Know your number before you hear the story. Look up the expense ratio of every fund you hold. It is printed in the fund's documents and on most platforms. Many investors can describe a fund's strategy in detail but cannot say what it costs them each year.

• Compare against what investors actually pay, not against the shelf. The equal-weighted average tells you what the industry charges. The asset-weighted average tells you where the money has gone. If your fund sits closer to the expensive end, ask yourself what you are getting for the difference, and whether you would choose it again today.

• Treat "new" as a cost question, not a quality signal. New funds tend to be expensive, and cheap launches are increasingly rare. Before buying into a recent launch, ask what it does that an older, cheaper fund does not, and whether that difference is worth paying for year after year.

• Slow down when a label says "income" or promises amplified returns. The categories with the most high-fee launches have not seen the fee competition found elsewhere. If you cannot explain in two sentences how a fund produces its payouts, and what it costs, you are not ready to own it.

• Add up every layer of cost. If you pay for advice or a platform, add those costs to the fund's own fee to see the full annual bill. Then compare that total, not the headline expense ratio, with the alternatives. A fund that looks cheap on its own can sit inside an arrangement that is not cheap at all, and the only way to know is to do the sum.

• Read fee research with the publisher in mind. Morningstar sells fund data and research, and fee transparency serves its brand. Just remember that one firm's study is a starting point, not the final word.

Your Turn: 
Without looking it up, can you name the annual fee on the largest fund you own – and how close was your guess once you checked?
Have you ever been drawn to a new fund because of what it promised, and did you check what it charged before you bought it?
If fees are the one part of investing you can know for certain, how much weight do they carry in your decisions compared with past performance?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

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