Vanguard goes after BlackRock’s heels in US exchange-traded funds

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Vanguard is closing in on industry leader BlackRock in US exchange-traded funds, a $6.6 billion competitive battleground for the world’s two largest asset managers.

U.S. ETF assets under Vanguard’s management totaled $1.84 billion at the end of August, compared with $2.21 billion managed by BlackRock’s iShares ETF unit, according to recently released data. Vanguard led the pack in attracting money into US ETFs in 2021 and is still ahead this year, in August receiving four times more than BlackRock.

BlackRock has been at the top of the ETF industry since its purchase of iShares from Barclays in 2009, but its rival is catching up fast. While BlackRock’s US ETFs still have 20% more assets than Vanguard’s, they were 50% larger in 2019.

As they jostle for dominance, the two groups have left behind other investment companies. BlackRock and Vanguard control more than 60% of a US ETF market that has nearly quintupled to $6.6 billion from $1.35 billion a decade ago.

The largest ETF by asset is State Street’s SPDR S&P 500 index tracker, but BlackRock and Vanguard offer 15 of the next 16. They also manage the two largest bond ETFs, which positions them to take advantage of what analysts expect to be a boom in debt products.

Industry experts predict a long race for dominance as the two groups seek new investors in turbulent markets. Other asset managers, including Invesco, JPMorgan Chase, Fidelity and Charles Schwab, are also trying to drum up investor interest in ETFs.

“The race in the US ETF market will be far from over even if the baton of leadership passes from BlackRock to Vanguard. Both managers earn a disproportionate share of a [ETF] pie that continues to grow,” said Todd Rosenbluth, head of research at VettaFi.

Vanguard and BlackRock pursue different strategies and customers. While Vanguard focuses on a relatively narrow range of low-cost products aimed at retail investors and their financial advisors, BlackRock’s iShares business offers a broader set of funds and also woos institutions.

“We play a different game. We want to be a leader, but it’s also about extending the use of ETFs to all types of clients. It’s more important,” said Armando Senra, who heads BlackRock’s ETF Americas business. He said institutional clients historically made heavy use of iShares in the fourth quarter as part of their tax strategies, and then expected an increase in inflows.

BlackRock has 399 US ETFs and 1,309 globally. “We seek to expand choice and access. . . Other competitors are very focused on one customer segment or one product segment,” Senra said. “ETFs are one of BlackRock’s growth engines, but they are not our only growth engine.”

Vanguard offers 82 ETFs and hasn’t rolled out a new one in two years, said Dan Reyes, head of its department that develops and oversees ETFs.

“We are continually looking to expand the offering, but we will be very judicious,” he said. “We tend to steer clear of themed or narrowly sliced ​​versions of the universe.”

Overall, BlackRock also maintains a substantial advantage. It had $2.96 billion in ETF assets globally, compared to Vanguard’s $2.04 billion at the end of July, the most recent comparable figures.

Both groups continued to absorb net inflows even though total assets under management have fallen since Russia’s invasion of Ukraine sent equity and debt markets plummeting. Total U.S. ETF assets hit a record $7.2 billion last year before falling back to $6.6 billion at the end of July, according to ETFGI, a consultancy.

“It’s been really encouraging and nice to see the ETF lineup as a whole resonate with investors,” Reyes said.

Ben Phillips, head of asset management advisory services at Broadridge, a fintech company, predicts lower fees for ETFs will prompt Vanguard and BlackRock to redouble their pursuit of other revenue.

Vanguard recently bolstered its advisory offerings, and BlackRock founder Larry Fink cited alternative investments such as real estate and private equity as well as its technology division as additional growth drivers.

“As passive ETF providers consolidate their market share, they’re getting bigger and bigger slices of the pie with ever-lower fees,” Phillips said.

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