BlackRock ETFs near $1 trillion as it loses market share to Vanguard

Mon Jun 30, 2014 5:13am EDT
 
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By Ashley Lau

NEW YORK (Reuters) - Even as BlackRock Inc (BLK.N: Quote) is set to amass $1 trillion in exchange-traded fund assets in its iShares business, U.S. retail investors increasingly prefer to send their money to low-cost leader Vanguard Group, highlighting a weak spot for the world's biggest money manager.

With $998 billion in ETF money, BlackRock has more than the next contenders, Vanguard and State Street Corp (STT.N: Quote), combined. But the company has struggled to compete with Vanguard, known for its investor-friendly low-cost investing, for Mom and Pop's nest eggs. Retail investors now account for more than half of the $1.8 trillion in ETF assets under management in the U.S, according to consulting firm PwC.

So far this year, Vanguard has pulled in about $30.3 billion in net new ETF money in the U.S., or about 43 percent of the market, while iShares is second with $24.7 billion, or about 35 percent. That reflects a trend that's been going on for years: at the end of 2009, BlackRock had 47.7 percent of total U.S. ETF assets under management, compared with 11.7 percent for Vanguard. By the end of May, BlackRock's share was down to 38.9 percent, compared with 20.6 percent for Vanguard, according to Lipper Inc, a unit of Thomson Reuters.

"Our aspiration is to be number one in flows, and we can't get there without being higher in the retail market place," said Mark Wiedman, the BlackRock executive who heads the iShares business globally, speaking at the company's annual meeting in New York in June. "We are starting to change our voice for that audience and I would say historically we frankly haven't done that good a job."

The market share loss comes in spite of BlackRock's two-year effort to win retail investors. BlackRock introduced a line of low-cost "buy and hold" investor-aimed ETFs in 2012, and since then has been cutting prices on its ETFs, revamping its sales team, and pushing a new branding campaign. The firm has cut prices on 12 funds since 2012, ranging from its S&P Total U.S. Stock Market ETF then to its high-dividend ETF in June 2014.

BlackRock says its flows have improved since it started its new retail effort.

One of the most significant price reductions was in its iShares High Dividend ETF. The cost to investors for that fund dropped to 0.12 percent a year from 0.4 percent, a move that would cost BlackRock $11.2 million annually, based on the $4 billion in the fund. Last quarter, iShares ETFs generated some $765 million in base fees revenue.

"Every basis point that you cut a fee impacts revenues, but we don't really look at that – we look at the profitability of our ETF business over the long term," BlackRock executive Frank Porcelli, head of U.S. Wealth Advisory Business, said at Reuters' Global Wealth Management Summit in June.   Continued...

 
The BlackRock logo is seen outside of its offices in New York January 18, 2012. 
REUTERS/Shannon Stapleton