Plain-vanilla, low-cost ETFs and active ETFs can play complementary roles in portfolios to maximize returns. That is the view of Matthew Bartolini, Global Head of Research Strategists at State Street Investment Management, who analyzes the latest investment flows into exchange-traded funds in an interview with Funds Society. Bartolini believes that long-term demand for core ETFs is widespread, adding that looking ahead, “any further fee reductions will likely depend on scale, operational efficiency, and asset growth.”
In the first half of 2026, inflows into ETFs exceeded $1 trillion, putting annual inflows on track to top $2 trillion. During this period, one out of every two dollars invested in ETFs (49%) went to low-cost ETFs—the category of funds upon which the ETF industry was built.
Investment inflows into low-cost ETFs remain exceptionally solid despite the surge in actively managed ETFs. What is driving this continued interest in these products?
Core low-cost ETFs remain foundational building blocks in portfolio construction for investors. They offer transparent, diversified exposure to key asset classes and market segments at a very low cost, making them effective strategic allocations within portfolios.
Their combination of broad market exposure, operational simplicity, and cost efficiency continues to resonate across a wide range of investors. These attributes also contributed to the State Street S&P 500 SPDR Portfolio ETF (SPYM) being selected as a default investment option within the new “Trump Accounts” program, expanding ETF adoption to a new generation of investors.
It is worth noting that this long-term demand is widespread. Advisors, institutions, model portfolio providers, and retirement-focused investors are increasingly turning to low-cost ETFs as efficient tools for portfolio construction, implementation, and long-term wealth accumulation.
How are low-cost ETF providers adapting their product lineups to this environment marked by the boom in active management?
The surge in active ETFs has not diminished demand for low-cost, plain-vanilla ETFs. Investors increasingly view them as complementary tools: low-cost ETFs provide efficient market exposure as the core of the portfolio, while active ETFs are used to pursue specific objectives, such as income generation, risk management, or alpha generation.
Regarding our solutions within our ETF lineup, the goal is to ensure we have a robust platform that includes both low-cost and active exchange-traded funds, enabling complementary uses. And that aligns with how investors construct their portfolios.
For instance, a typical portfolio might use broad-market, low-cost equity and fixed income ETFs as a foundation, then overlay active strategies to generate income, manage risk, seek alpha opportunities in less efficient markets, or execute a specific, granular thematic investment thesis.
The reality is that investors are increasingly adopting both active ETFs and low-cost index-based ETFs, deploying each for the function it performs best within the portfolio. In some cases, we see low-cost index exposures being used actively to build more customized allocations that align with a portfolio’s risk tolerance or a broad macroeconomic outlook.
This is most prevalent in fixed income, where strategies exist that break down overall macroeconomic betas into different maturities within U.S. Treasury or U.S. corporate bond markets to balance yield and duration profiles with greater precision.
Is there scope in the industry to continue reducing ETF fees?
Many core beta exposures are already priced exceptionally low, although the industry continues to see periodic fee reductions. Looking ahead, any further fee reductions will likely depend on scale, operational efficiency, and asset growth.
Which types of low-cost ETFs are currently generating the greatest interest among investors?
Broad equity exposures have captured the lion’s share of low-cost flows year-to-date. Seventy percent of low-cost flows in 2026 have gone toward equity exposures (+$381 billion), with 70% of that total (+$291 billion) funneled into low-cost ETFs focused on U.S. equity markets.
This trend reflects the efficiency of broader equity markets and investors’ ongoing desire to access core market beta at a low cost. It also helps explain why active managers tend to focus on areas where they believe there are greater opportunities to generate alpha—for example, ex-U.S. markets.
The picture is somewhat different in fixed income. Active fixed income ETFs have captured a larger share of flows than would be expected based on their market share of assets under management, with active fixed income attracting approximately 42% of flows versus 31% of assets.
The opposite is true for low-cost fixed income ETFs, which account for 57% of flows despite comprising 69% of fixed income ETF assets. This suggests that investors are increasingly turning to active managers to help enhance yield opportunities while managing interest rate, credit, and macroeconomic uncertainty across bond markets.
