Low-cost ETFs might be good for investors, but they aren’t exactly great for their issuers’ bottom line.

Bargain-price ETFs have drawn the bulk of new investment dollars, even though older, more expensive products are the ones actually making money for issuers, finds a new report by Bloomberg’s Senior ETF Analyst, Eric Balchunas.

According to the report, more than 100 ETF issuers made just $7 billion in revenue from their funds last year—some $1 billion more than ETF issuers made in 2016, the last time we looked at these figures (read: “ETF Industry Revenue Challenged By Fee Wars”).

That’s a pittance compared with the $315 billion of net inflows that went into ETFs in 2018, the industry’s second-highest-flows year ever.

Older Funds Make More $

What’s more, the bulk of that revenue is made by older, more expensive ETFs, like the $244 billion SPDR S&P 500 ETF Trust (SPY), which generated in $226 million in revenue for 2018. For comparison, the iShares MSCI Emerging Markets ETF (EEM), the second-biggest revenue generator, made just under $200 million in revenue.

Fee Wars Compress Revenues

Over the past five years, assets in ETFs have doubled to just under $3.4 trillion. Yet the revenue earned by issuers on those ETFs has risen only half as fast, at 56%, found Balchunas. Why? Fee wars.

Investors have poured into cheap ETFs, which has not only pressured existing issuers to lower their fees to stay competitive, but compelled many industry newcomers to debut with ultra-cheap funds, so as to attract market share.

However, each fee cut means issuers are sacrificing potential revenue in hopes of attracting more assets.

No wonder, then, that older ETFs are kept afloat, even after the launch of newer, cheaper versions that cover practically the same index. Take the iShares Core MSCI Emerging Markets ETF (IEMG),which, at a 0.14% ratio, is more than 0.50% cheaper than its predecessor, the iShares MSCI Emerging Markets ETF (EEM). Yet EEM brought in the second-highest amount of revenue in 2018.

Simply put, older funds like EEM are too profitable to close.

BlackRock: 43% Of All ETF Revenue

Not surprisingly, the lion’s share of revenue went to BlackRock, which is also the industry’s largest issuer. Last year, iShares ETFs took in roughly $3 billion in revenue, or about 43% of the industry total.

State Street Global Advisors, the next highest issuer, made $950 million on its funds, while Vanguard rounded out the top three, with $634 million in revenue.

Intriguingly, a third of the top 15 highest-revenue issuers—State Street, ALPSWisdomTreeNorthern Trust and Deutsche Bank—saw net investment outflows last year, yet they still walked away from 2018 with positive ETF revenue.

“Assets and revenue are usually correlated,” Balchunas writes in the report, noting that the more assets an issuer pulled in, the higher its revenue tended to be.

However, there were at least two exceptions: Direxion’sleveraged/inverse products carry hefty fees, helping the firm to draw more revenue from each fund; while Schwab’s ultra-low price tag on its ETFs has served to hamper its overall revenue growth.

High-Volume ETFs Make Most Money

Intriguingly, none of 2018’s highest-revenue ETFs were launched in the last 10 years, and in fact, most launched at least 15 years ago. As such, most were first-movers in their respective space, giving them a chance over time to build up massive liquidity and establish themselves as the preferred vehicles for short-term traders.

Take EEM: Though it’s the 23rd-largest ETF, it ranks second in terms of overall revenue; it’s also the third-most-highly traded ETF on the market today.

“Many short-term-oriented bigger investors overlook [EEM’s] above-average 0.69% fee because it trades more than $2 billion a day,” wrote Balchunas in the report.

All 10 highest-revenue ETFs are among the top 50 ETFs with the highest average daily trading volume, while five are among the top 10 highest-volume ETFs:

That said, there’s a continuity element as well. Buy-and-hold investors who entered these older funds early have an incentive not to shift to cheaper funds, because they’d end up paying (potentially sizable) taxes on whatever gains they’d realize. Hence these investors remain in the older, more expensive products.

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This article by Lara Crigger was originally published at ETF.com