Are ETFs always cheaper? Ongoing charges and trading costs explained

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Shares Magazine

12 November 2026

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Exchange-traded funds (ETFs) debuted on the UK stock market at the start of this century and changed the way people could engage with financial markets forever. 

They’ve become one of the most popular ways for people to invest for two main reasons:

• They’re generally much cheaper than a fund run by a professional. As a rule of thumb, the average global ETF has headline charges of around 0.07%-0.15% a year. Meanwhile, a global active fund costs around 0.6% to 1.2%. 
• They’re incredibly efficient at giving investors a lot of exposure to wide variety of stocks. This is because ETFs are primarily used to follow an index. 

This meant that for often a modest and manageable sum, investors can buy an ETF tracking say the MSCI ACWI or the FTSE World and partake in the returns offered by that index. 

However, it’s not always the case that an ETF is the cheaper option when it comes to investing, even when you compare it to an active fund. 

There are ETFs with ongoing charges (OCF) north of 2%, reaching highs of near 5%, and that’s before you start taking platform fees into account.

So what makes an ETF expensive? 

The OCF represents the annual cost of running the fund and is expressed as a percentage of your investment.

The percentages can look tiny, but translating them into pounds makes the difference clearer.

On £10,000 invested, an OCF of 0.10% is equivalent to about £10 a year. A 1% OCF is equivalent to £100, while 2% equates to £200.

The charge isn’t normally presented as a separate bill. Instead, it is reflected in the fund’s value as it’s part and parcel of buying the product.

Some of the most popular ETFs among AJ Bell DIY ISA investors demonstrate just how cheap mainstream trackers have become. ETFs tracking markets such as the S&P 500 or global stock markets can have OCFs of just a few basis points.

Economies of scale play a big role in providers like Vanguard or BlackRock’s iShares being able to drop the fees to near zero and still remain profitable because many of these mainstream funds house billions in assets under management (AUM). This allows providers to spread the costs of running the ETF across a large pool of investors, versus a more niche, less mass market appealing fund.

The more niche you go, the more you can pay

Moving away from big mainstream markets can mean paying more for that specialist exposure to the market.
ETFs investing in harder-to-access markets may encounter higher costs associated with areas such as custody and trading. Specialist investment approaches can also require more turnover of the assets held by a fund.

This can be seen in the costs across different parts of the market. The average ETF covering the IA Commodity/Natural Resources sector costs 0.42%, according to data from FE Analytics. That is still below the 0.94% median for active funds in the same sector, but considerably above the cheapest mainstream trackers. It isn’t just specific sectors, geographies can make a difference too, particularly if they are less widely covered or more complex to access.

ETFs in the IA Global Emerging Markets sector cost 0.25% on average. At the more extreme end, highly specialist products covering individual commodities such as just nickel, gold, corn or wheat or niche parts of the market, can have charges above 2%.

Factoring in index costs

Another factor is the index sitting underneath the ETF. There are a few providers of these but the main ones are MSCI, S&P Dow Jones and FTSE Russell, the strength of their brands are so synonymous with markets that ‘the S&P’ is a shorthand for the US’ S&P 500 index or ‘the FTSE’ for the FTSE 100 say.

The ETF provider pays a licensing fee to the firm that created and manages the index the ETF tracks, and it’s big business. In 2025 almost 60% of MSCI’s total operating revenues for the year came from its index licenses, at $1.79 billion, up 14% year-on-year.

There are some ETFs which track less widely known indices which have a very similar list of constituents. For example, Amundi Prime Global has ongoing charges of 0.05% compared with Amundi Core MSCI World which has ongoing charges of 0.06%. The former tracks the Solactive GBS Developed Markets Large & Mid Cap index, an index which has delivered an almost identical total return as the MSCI World over the last five years, as the chart shows.

If the index has been specially designed or has a more niche focus, that comes with extra costs which are ultimately passed on in the form of higher OCFs.

MSCI ACWI ex US for example has become a popular option among retail investors who have become concerned about the concentration risk associated with US stocks, but these funds have higher charges than those of traditional global passive ETFs.

The same can apply to funds with an ESG screen on them, as some investors might want to make certain sustainability-linked decisions with their money. This will make the index and thereby the ETF cost more.

Think of your MSCI ACWI index and ETF as the standard plain black coffee you order. No milk or sugar or cream, it’ll be the cheapest option on the menu. But the one with a double shot, caramel drizzle or cinnamon dusting is the more niche or complex product. It’s still a coffee, but the method involved in making it is more expensive, and so you pay more.

What about active ETFs?

Not all ETFs simply track a market, there is a growing contingent of active ETFs available to UK investors. As well as products which are sometime labelled ‘smart beta’ which apply a filter to the market on characteristics such as value and income to build a basket of stocks.

These are more expensive than passive products but research from QuotedData published in November 2025 on active ETFs noted: “They offer the flexibility and transparency of passive ETFs, combined with the benefits of active management, usually at a lower cost than traditional active funds, though still higher than passive ETFs.”

Trading too much can bump up the bill

The OCF isn’t the only cost to buying an ETF to think about. Investors also need to consider what their platform charges them to buy and hold an investment, and this can be particularly important if they invest relatively small amounts.

On AJ Bell, for example, the standard dealing charge for an ETF is £5 compared with £1.50 for a traditional fund.

The ETF dealing fee falls to £3.50 if you make more than 10 deals in a month. Eligible ETFs and funds can also be bought through regular investing without a dealing charge, provided the regular investment is at least £25.

Consider someone, making a one-off £100 ETF investment and paying a £5 dealing charge. They would need a gain of more than 5% just to get back to break even.

So, even an ETF with a very low OCF could come with significant costs if you regularly make small trades and incur dealing charges each time.

Look beyond the ETF label

None of this means ETFs are expensive point blank. But before buying, investors should look at the OCF, what the ETF actually invests in and how complex its strategy is. They should then consider dealing charges and platform fees as well.