Did iShares’ October 2012 launch of its ‘Core’ ETFs mark the awakening of a sleeping giant?
When iShares introduced its ultra-cheap family of 10 ‘Core’ ETFs in the U.S. market in October 2012, the world of ETFs and financial advisors took notice. As an example, one of those funds, the iShares Core MSCI Emerging Markets ETF (IEMG | B-98), has raked in upward of $4 billion in less than 18 months. It even earned an “Analyst Pick” rating from ETF.com. It’s cheap, efficient and the very essence of a pure indexing vehicle.
But what investors didn’t consider is that the launch of the Core products might have marked the beginning of a much more ambitious strategic initiative for the world’s biggest ETF sponsor. But that’s what it increasingly looks like, and that’s what ETF.com Managing Editor Olly Ludwig asked about when he caught up recently with Daniel Gamba, head of iShares’ institutional business in the Americas. Discussing a variety of his company’s plans, Gamba said it’s now clear to his company that ETFs in general are becoming much more popular among institutions and retail advisors.
ETF.com: Let’s talk about the launch of the “Core” lineup of ETFs in October 2012. It was an important day in iShares’ history. What led to that decision?
Daniel Gamba: The “Core” launch was a very important decision driven by client demand. We realized our liquid product set really drove demand and attention for clients who were looking for short-term positions or positions that were three- to six-months long.
But “Core” represents strategic positions that investors want to keep for about three to five years. We came to the conclusion that it was just a different product set the clients were looking for. They were looking for broad exposures that were competitively priced, and can have them in their portfolios for a longer period of time.
So we decided the best solution was a “Core” series. It’s been a huge success to the degree that we are now considering expanding some of those exposures into other subregions of the market.
ETF.com: Which client group or groups does “Core” target—retail, or everybody?
Gamba: When we designed the Core, the goal was really to go more after the advisor client who wanted a buy-and-hold exposure. The biggest surprise to us happened right after we launched Core.
We had an institutional client conference in New York. We were talking about the change of indices from a competing firm, and in that context I introduced Core. A big pension plan came to me and said, “Traditionally I would use ETFs only for tactical transition management positions. But this ‘Core’ is actually very good if I want to have a position in the Barclays Capital Aggregate. And if I want the ‘Agg,’ why wouldn’t I do it with an ETF? I used to do it with like a separate account or a common trust fund. This is really a great solution.”
So then more and more discussion happened. And now I would argue that more than half of the flows to the “Core” products have come from institutional investors.