How The Big 3 ETF Issuers Got So Big

August 29, 2017

Fixed-Income Advantage
Just as with State Street, iShares continues to ride the benefit of first-mover advantage for the funds it launched first, especially in the bond market. In 2002, the company launched the first fixed-income funds: the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), the 1-3 Year Treasury Bond ETF (SHY), the 7-10 Year Treasury Bond ETF (IEF) and the 20+ Year Treasury Bond ETF (TLT). All four remain heavy hitters, perennially appearing in the top 25 largest bond ETFs. (In fact, of those top 25 bond ETFs, 16 carry the iShares name.)

That sets up iShares well to address the needs of what many industry experts predict is the next big ETF market: insurance companies looking to build out their fixed-income portfolios with active and smart-beta strategies.    

"Fixed income is going to be transformational," Weiss predicted. 

Of course, the downside to playing the numbers game is that not every iShares ETF is a megastar. Of its 343 funds, 99 (or 29%) fall below $100 million in AUM. To an extent, successful funds are subsidizing the stinkers.

The issuer has also closed 66 funds, or almost as many as Vanguard has ever launched. Most of these closures occurred in the last three years.

"We're constantly evaluating whether clients are using our products the way we expected them to, and whether they still have a role in the market," noted Weiss. "That said, one of the benefits of scale is that we can afford to be patient."

The idea of an issuer as large as iShares lying in wait and biding its time seems funny. But with a record $74 billion in net inflows in the last quarter alone, for iShares, the sky really may be the limit.

*McCollum, Andrew. "Institutional Investment in ETFs: Versatility Fuels Growth." Greenwich Associates. Q1 2016. PDF available here

 

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