Every year, so many ETFs are released that it becomes increasingly complex for investors to select the right ones. A new Lumin study provides clarity on the ETF market.
ETFs (Exchange Traded Funds) continue to grow in popularity, driving rapid expansion in the market. In the UK alone, 196 new ETFs were launched in the first six months of 2025, bringing the total number listed on the London Stock Exchange to around 3,000. However, with an ever-growing range of ETFs available, it’s increasingly difficult to identify the most suitable options. What’s more, ETFs are no longer always simple, low-cost, and transparent. Many newer offerings are becoming much more expensive and complex, as highlighted in a recent study by Lumin Wealth. Here, we break down some of the study’s key findings.
Passive vs. active
Traditional passive ETFs are designed to replicate their underlying index on a 1:1 basis, delivering returns that closely track overall market performance. In contrast, many of the newer ETFs are actively managed, with fund managers aiming to outperform the market. Despite these ambitions, many fall short. In 2025, for instance, a large number of active ETFs benchmarked to the MSCI World Index ended up underperforming it.
Cheap vs. expensive
ETF fees currently average around 0.3%, but there’s considerable variation across the market. Nearly a third of providers charge significantly more – sometimes as much as 1.25%. Those marketed as “actively managed” tend to be the most expensive – a cost that may be very difficult to justify if they fail to deliver consistent outperformance relative to their benchmarks.
Even among ETFs tracking the same benchmark index, fee levels can differ widely. In the case of the MSCI World Index, the highest cost product is over eight times more expensive than the lowest cost product.
Classic vs. thematic
Thematic ETFs focusing on trending topics like AI and robotics have seen a surge in popularity, creating a sizeable market segment. How-ever, these investments often come with higher risks and increased costs – returns that, in most cases, are not justified. Over a three-year period, more than 80% of thematic ETFs underperformed their respective benchmark indices, and no thematic category managed to outperform the MSCI World (see chart above).
Tip: Low-cost passive ETFs that offer broad diversification remain an attractive option for long-term investment success. How-ever, investors should regularly review the ETFs in their portfolio to ensure they still align with their objectives. Some holdings may now be overpriced or failing to effectively track their target markets, potentially undermining overall performance.
Note: Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested.
[i] Each type of investment has its pros and cons, so choosing the right ETF is a key part of building a strong portfolio – and that’s where Lumin can help. Call 03300 564 446 or get in touch via our contact form to find out how.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
