Mind the Gap: ETF Investors Missed $3.8 Trillion

Jeffrey Ptak, a managing director at Morningstar, authored the Mind the Gap 2026 study. Morningstar found that the average dollar invested in U.S. funds and ETFs earned 8.7% annually over the decade ending in 2025. This figure trailed the funds' 9.9% aggregate total return over the same period.

The 1.2 percentage point shortfall, which Morningstar calls the investor return gap, equals roughly 12% of the funds' total return. It stems from the timing and size of investors' own trades rather than weak fund performance.

As of Jan. 1, 2016, eligible funds held $13.6 trillion in assets, according to the report. Left untouched, that money would have grown to nearly $35 trillion by the end of 2025.

Instead, those assets totaled $29.7 trillion, the report found. Poorly timed buying and selling can explain most of the shortfall.

However, not every category told the same story. U.S. stock fund investors captured 12.8% annually against a 13.3% total return, a gap of just 0.4 percentage points. Morningstar called it the most profitable decade in fund history for the category.

Those investors started with $5.8 trillion in assets at the beginning of 2016. Comparatively steady flows helped those gains compound to more than $12 trillion.

For advisors, the findings build a case for the structural guardrails that many already recommend. These include automated rebalancing, core allocation strategies, and outcome-oriented products designed to keep clients from acting on impulse.

Where the Gap Widens

The gap tended to widen wherever trading came easiest. ETFs earned higher dollar-weighted returns than open-end funds over the decade, 9.5% annually versus 8.5%, Morningstar found. But that liquidity came at a cost. The gap for ETFs was 1.6 percentage points — wider than the 1.2-point gap for open-end funds.

Management style and fees mattered less than advisors might expect, the study found. Active fund investors earned 7.5% annually — 1.6 points behind their funds' total return. Index fund investors earned 10.3% — a narrower 1.1-point gap.

Fees showed an even weaker link to investor success. The cheapest funds carried a 1.0-point gap, versus 1.2 points for the priciest funds, according to the report.

Volatility proved to be the stronger predictor. The study found that the least volatile funds posted a 0.4 point gap over the decade. The most volatile quintile suffered a gap of more than 2 percentage points.

Investors in calmer funds kept nearly all of their gains; those in choppier funds gave much of theirs back.

New ETF Structures, New Behavior Gaps

This year's study also examined three newer ETF types: buffer ETFs, leveraged single-stock ETFs and crypto ETFs. Together, they drew $165 billion in combined inflows over the past five years, Morningstar reported. The results diverged sharply.

Buffer ETFs

Buffer ETFs use derivatives to target returns within a set range over a defined period. They were the standout in this year's study. Dollar-weighted returns exceeded aggregate total returns over both the three- and five-year periods ended Dec. 31, 2025.

Flows clustered around each fund's outcome window, according to the report. Investors also caught favorable timing in 2022, when losses hit hardest in the first half of the year. Buyers of funds tied to later months, such as July, entered just as performance began to stabilize.

Leveraged Single-Stock ETFs

Leveraged single-stock ETFs delivered a murkier picture, the study found. In aggregate, three-year dollar-weighted returns nearly matched the group's total return, but results varied widely by fund.

The Direxion Daily GOOGL Bull 2X Shares (GGLL) posted a 105.6% annual dollar-weighted return. That was nearly 24 points ahead of its own total return.

Investors in the GraniteShares 2x Long COIN Daily (CONL) fared worse, losing more than 38% annually. The fund itself returned 47.6% over the same span. Across the group, investors trailed the underlying stocks' unleveraged returns by 1 percentage point a year, the study found.

Crypto ETFs

Crypto ETFs showed the widest gap of the three. Investors in spot bitcoin ETFs gained about 22% annually from their Jan. 11, 2024 debut through Dec. 31, 2025. That trailed the group's aggregate return by roughly 14 points, Morningstar found.

The shortfall traced largely to flows into the iShares Bitcoin Trust ETF (IBIT), which drew investors after bitcoin had rallied. That offset an opposite pattern in the Grayscale Bitcoin Trust ETF (GBTC). Investors there withdrew soon after its January 2024 launch, before bitcoin's rally began to falter, the report noted.

See more: Crypto ETFs: A More Selective Market Emerges

Morningstar revisited those numbers through June 30, 2026. By that date, the average dollar invested in the ETFs had lost 5.8% annually since January 2024, more than 14 points behind the group's 8.5% aggregate return.

Inflows kept arriving after bitcoin had already climbed. Redemptions followed as prices fell, locking in losses for many investors.

Closing the Gap for Clients

Morningstar's report offers straightforward guidance for advisors. It favors fewer, more broadly diversified core holdings, since allocation and U.S. equity funds consistently posted the narrowest gaps. It also leans on systematic strategies, such as dollar-cost averaging and automated rebalancing, to remove discretionary decisions from the process.

Defined-outcome products may offer a structural assist of their own. Because buffer ETFs tie flows to a fixed outcome window — the study found — they can nudge investors toward buy-and-hold-like behavior. That happens without any deliberate change in investor intent.

Whether this pattern holds as the category grows is an open question. It may break the moment a downturn tests investor patience — something that only the next decade of data can truly answer.

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