Invesco, the parent company of Invesco PowerShares, has announced a deal to acquire Guggenheim Partners’ ETF unit in a transaction worth $1.2 billion.
PowerShares is the No. 4 ETF issuer in the U.S., with roughly $130 billion in assets under management (AUM), while Guggenheim ranks at No. 8, with nearly $37 billion.
PowerShares has nearly 160 individual ETFs trading in the U.S., and Guggenheim’s offering includes roughly 70 funds. One of the most interesting features of the acquisition is the fact that there is very little overlap between the two issuers’ lineups, and both firms are known for their focus on providing ETFs that are anything but plain-vanilla.
Todd Rosenbluth, director of ETF & Mutual Fund Research at CFRA, noted in a statement that in addition to complementary lineups, both firms have strong relationships with S&P Dow Jones Indices.
“We don't expect there to be a need for product rationalization or confusion among clients,” he added.
PowerShares’ largest fund is the PowerShares QQQ Trust (QQQ), which has $52 billion in AUM, followed by the PowerShares Senior Loan Portfolio (BKLN) and PowerShares S&P 500 Low Volatility Portfolio (SPLV), which have $8.8 billion and $7 billion in AUM, respectively.
Guggenheim’s flagship fund is the $13.6 billion Guggenheim S&P 500 Equal Weight ETF (RSP), with the Guggenheim S&P 500 Pure Growth ETF (RPG) and the Guggenheim S&P 500 Equal Weight Technology ETF (RYT) following behind, with $2.1 billion and $1.4 billion, respectively.
Not only will the bigger issuer be acquiring its second-largest ETF in RSP, PowerShares will also be getting Guggenheim’s family of target-maturity bond ETFs. The 20 BulletShares funds have roughly $9 billion in AUM, and represent about a quarter of Guggenheim’s total ETF assets.
The funds are increasingly popular with advisors who use them for strategies that typically involved individual bonds previously, such as laddering.
“CFRA thinks the deal will help PowerShares gain much-needed scale to compete with established ETF providers and newer entrants, such as Goldman Sachs, that have been benefiting from demand for lower-cost offerings,” Rosenbluth said.
The purchase will significantly increase PowerShares’ AUM, but it won’t put much of a dent in where it stands versus other issuers. State Street Global Advisors, the No. 4 ranked firm, has more than $560 billion. However, it could be the boost PowerShares needs.
"This combination will further strengthen our market share and position by providing greater access to key channels and expanding the scale and relevance of our global ETF business," said Dan Draper, Invesco PowerShares’ global head of ETFs.
Rosenbluth points out that while the leading issuers—iShares, Vanguard and State Street—have grown in the past two years to a total combined market share of 83%, PowerShares and Guggenheim combined only command about 5.3% of the market, down from 5.9%.
“We expect advisors and investors to increasingly use passively managed ETFs to build asset allocation strategies, helping to drive continued asset growth for the industry. PowerShares has been positioning itself in recent years to be a beneficiary of this shift, and we view the expected deal favorably,” Rosenbluth summed up.
Indeed, PowerShares’ most recent launches are six plain-vanilla, cap-weighted ETFs covering core asset classes that the firm markets under the “PureBeta” banner at very competitive prices.
Contact Heather Bell at [email protected]