Vanguard Group, already the biggest mutual fund company in the world, has risen to the No. 2 spot in the world of exchange-traded funds—a long-foreseen development here at ETF.com based on the growing allure of its low-cost index funds, including ETFs.
Toppled for now from the No. 2 spot in the world of ETFs is Boston-based State Street Global Advisors, the firm behind the biggest exchange-traded fund in the world, the SPDR S&P 500 ETF (SPY | A-98). SPY figures highly in the changing of the guard to the extent that flows out of the $191 billion fund in the past few days have done more to fuel the shift than a sudden surge in the popularity of Vanguard.
The Vanguard story is a slower-moving narrative that has taken the Malvern, Pennsylvania-based firm from outsider and insurgent at the time of its founding 40 years ago to the very emblem of putting investors first. Its relatively inexpensive funds that it runs at cost as a matter of course, plus its heavy emphasis on index strategies have gained it a public that largely embraces its buy-and-hold values.
Total assets invested in U.S.-listed Vanguard ETFs ended the trading session on Tuesday, Jan. 20 at $432.65 billion compared with $431.80 billion for SSgA, according to data compiled by ETF.com. Crucially, all of Vanguard's funds are structured so that fund fees come down as a matter of course as assets increase. In other words, as long as Vanguard keeps hauling in assets, fees on its funds will keep coming down.
Add the $756.42 billion invested in ETFs sponsored by world’s biggest ETF company, BlackRock's iShares unit, and the top-heaviness of the U.S. ETF industry starts to come into focus. Indeed, the three-biggest ETF companies command more than 80 percent of the $1.986 trillion now invested in U.S. ETFs.
|Issuer||AUM ($, mm)||Net Flows ($, mm)||% of AUM|
|US Commodity Funds||3,233.15||-31.09||-0.96%|
|Exchange Traded Concepts||2,204.77||0.00||0.00%|
|Emerging Global Shares||1,590.38||0.44||0.03%|
|Millington Securities Inc||1,155.52||0.00||0.00%|
|Highland Capital Management||311.36||0.00||0.00%|
|Arrow Investment Advisors||150.15||0.00||0.00%|
|Franklin ETF Trust||27.79||0.00||0.00%|
|Royal Bank of Canada||27.57||0.00||0.00%|
|Huntington Strategy Shares||18.18||0.00||0.00%|
|ETF Issuer Solutions||6.24||0.00||0.00%|
Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.
Vanguard Rising And Rising
Vanguard, as noted, has been steadily building momentum for the better part of 30 years after spending the first decade of its existence as something of a heretic and pariah. Its success has not been built on the vast success of any one or two strategies, but rather on an attitude about what constitutes responsible investing. Investors are embracing that attitude and buying its funds.
So it is that a broad variety of its ETFs are gaining assets such that, on a percentage basis, Vanguard has been edging out its most of its competitors in the ETF space over the past few years.
Also, to the extent that investors in Vanguard generally hew to the buy-hold-and-rebalance sensibility that Vanguard holds so near and dear, turnover in its ETFs—how much they are traded, essentially—is generally much lower than turnover of other ETFs sponsored by other firms.
Nonetheless, Vanguard’s founder John Bogle continues in retirement to warn of the deleterious effects of overtrading ETFs. Bogle’s diatribe is annoying to many in the investment world, but make no mistake: Bogle is preaching the gospel of peer-reviewed research about how to improve outcomes. This is a mutually structured company that's owned by investors in its funds that embraces the law of big numbers, and what that law says investors should be doing.
Investors are clearly listening to its message. Vanguard is now the biggest mutual fund company in the world, with more than $3 trillion in assets under management.
SSgA Alive And Well
Lest readers, at first blush, see a definitive changing-of-the-guard tale in Vanguard’s rise, SSgA may well recapture the No. 2 spot and even hold it, as the company has much to recommend it.
SSgA has breathed new life into a franchise that for years depended on the success of SPY; on the allure of its huge gold ETF, the SPDR Gold Shares (GLD | A-100), and on its cheap and very tradable family of sector-focused equity ETFs. A lot is brewing and popping these days at SSgA.
Its cutting-edge focus on active ETFs, such as the SPDR Blackstone / GSO Senior Loan ETF (SRLN | B); its broad embrace of factor-focused indexed ETFs, like the extensive “Quality Mix” family it brought to market in the past year; and the fact that it’s now making common cause with bond guru Jeffrey Gundlach paint a picture of an ETF firm with renewed mojo.
The takeaway? Investors best keep a close eye on SSgA.
iShares The King
What’s less clear in the ETF League Table we publish every day here at ETF.com is whether either Vanguard or SSgA will ever topple iShares from its perch as the world’s biggest ETF company.
iShares, faced with a competitive onslaught from Vanguard’s ETF business in the aftermath of the market crash of 2008-2009, rebranded a slew of its ETFs as “Core” in October 2012. Those ETFs are cheap, extremely well run and highly successful.
Moreover, the values at the core of the “Core” initiative have spread to almost everything the San Francisco-based company has done since.
But as the adage goes, imitation is the sincerest form of flattery, and there’s no doubt iShares is borrowing a page from low-cost Vanguard as it finds a viable way to defend its position as the biggest ETF company in the world.