The popularity of low-cost passive ETFs is driving an unexpected change in fund management: new entrants are becoming more expensive.

Harnessing the hunger for complex strategies that rely on everything from stock options to crypto to stand out in the market, this year's new ETFs rank among the most expensive of the decade. This is a boon for fee-hungry issuers.

The average fee for an exchange-traded fund launched in 2024 is 61 basis points, one of the highest averages on record since 2010, according to a Bloomberg Intelligence analysis. Of the 383 ETFs launched so far in 2024, nearly two-thirds have a fee of 50 basis points or higher.

The trend can be paradoxically traced to the race to the right lower rates occurring among the top ranks of the ETF league table. For years, giants including Vanguard Group, BlackRock Inc. and State Street have lowered expense ratios on their passively managed core portfolio funds to lure new investors into the increasingly crowded field — a phenomenon called the “Vanguard Effect.” On the other hand, investors have more budget, and likely more risk tolerance, to allocate a small part of their portfolio to expensive and specialized funds.

“Ironically, the more popular passive becomes, the crazier and more expensive the new products will become,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “Because the rest of the portfolio is 10 basis points, people don't worry too much about paying for something that's 1%.

This year's new launches include: Roundhill Innovation-100 0DTE Covered Call Strategy ETF (tick QDTE), which launched in March with a fee of 95 basis points, a fund that offers 2x the daily performance of Bitcoin by charging 95 basis points underlying and an ETF that buys other option-based income funds at 1.28%.

Despite how expensive the new ETFs are, when we look at all funds in terms of total assets, the average expense ratio is still lower. The average asset-weighted expense ratio for all U.S. ETFs is 17.2 basis points, up from roughly 23 basis points just eight years ago, according to data compiled by Bloomberg Intelligence.

However, for many issuers, even increasing assets in just one fund with a high expense ratio can make a difference. ETFs priced at 10 basis points or less account for 60% of the industry's assets but collect only 19% of the industry's total revenue, according to Bloomberg Intelligence. Meanwhile, ETFs that are above average in cost, with expense ratios higher than 50 basis points, account for just 7% of the industry's assets, but generate over a third of revenue.