The Financial Times reports on the record breaking growth in the ETF industry and the two firms that are leading the charge. No surprise to see Vanguard and Blackrock continuing to dominate the space. Vanguard is a pioneer and a powerhouse in indexing, and Blackrock’s ETF business has long been a leader in the space.
Champagne corks should be popping in celebration across the exchange traded fund industry after a third successive year of record-breaking growth.
But many ETF providers will have left their fizz on ice after again struggling to mount any meaningful challenge against BlackRock and Vanguard, the two largest fund houses globally, which have enormous passive investment businesses.
Both asset managers registered record ETF inflows in 2016, tightening their grip on the market. Together the fund giants now control 55 per cent of the global ETF market between them — up from 52 per cent at the end of 2012.
Many asset managers with smaller ETF businesses are floundering in the face of this competition. HSBC, the UK bank, recorded a second year of net outflows from its ETF operations in Europe in 2016, while Ossiam, the boutique owned by Natixis, the French asset manager, reported outflows of €47m.
The question for smaller providers and newcomers to the ETF industry, which drew a record $390bn from investors last year, is whether it is worth even attempting to compete with BlackRock and Vanguard.
Vanguard’s ETF inflows rose by nearly a sixth to $97bn last year, while new business for BlackRock’s ETF arm, iShares, increased by nearly a tenth to $140bn.
As the two companies’ ETF businesses get bigger, so too does their ability to cut fees, making their products even more attractive to new investors. Both announced additional fee cuts in December, escalating the price war that is hurting their competitors.
Read more here.
Jeremy Jones, CFA
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