Who's Winning The ETF Race?

January 05, 2010

In a sneak preview from January's Exchange-Traded Funds Report, we look at the state of the ETF industry in 2010.

 

There’s little question: The exchange-traded fund industry is booming. At the end of November 2009, U.S. ETF assets hit a new all-time high, of $752 billion, and inflows into ETFs were set to top $100 billion for the year. Based on prevailing expense ratios alone, the industry was earning $2.62 billion in annual fees.

This fast-rising tide, however, hasn’t lifted all boats evenly. Some ETF companies are rising faster and higher than the rest. We decided to run the numbers and see who’s winning, who’s losing and who’s emerging as new powerhouses in the industry.

The Market Leaders

The ETF industry is decidedly top-heavy. There are six ETF providers with more than $10 billion in assets under management, and together, these firms hold an astonishing 94 percent of all industry assets.

BlackRock
$360 billion AUM
$1.32 billion in estimated fees
Largest ETF: iShares MSCI Emerging Markets ETF (NYSE Arca: EEM), $37.3 billion

At the top of the pile—by a long shot—is BlackRock. BlackRock’s iShares brand holds 48 percent ($361 billion) of all ETF assets and earns more than half of the industry’s total revenues (about $1.32 billion). BlackRock offers the most ETFs of any company (188); had the highest inflows in 2009 through November ($35 billion); and is the brand most closely associated with the term “ETF.”

If BlackRock has a weakness, it’s fees. A number of low-cost competitors such as Vanguard and ETF Securities have been gaining traction recently by offering investors similar products to dominant iShares brands at substantially reduced costs. We’ve seen funds like the iShares MSCI Emerging Markets ETF (NYSE Arca: EEM) and the iShares Silver Trust (NYSE Arca: SLV) lose market share to lower-cost competitors.

By no means does this suggest that BlackRock is in trouble, or that its market dominance is truly threatened. But the fee wars will most likely only intensify in the coming months and years, and BlackRock’s eventual response could resonate throughout the industry.

State Street Global Advisors
$182 billion in AUM
$419 million in estimated fees

Largest ETF: S&P 500 SPDRs (NYSE Arca: SPY), $72.2 billion

State Street Global Advisors launched the first and now largest ETF in the United States, the S&P 500 SPDRs (NYSE Arca: SPY), and continues to be a major player. The firm holds a solid grip on the No. 2 slot in the industry both for assets ($182 billion) and revenues (about $419 million, or 16 percent of the industry total).

State Street’s ETF lineup is a bit top-heavy, with $115 billion of its $174 billion held in just two funds, the aforementioned SPY and the wildly popular SPDR Gold Shares (NYSE Arca: GLD).

But SSgA’s lineup isn’t one-dimensional. The company has a strong family of associated sector ETFs (the Select Sector SPDR ETFs), and has been a leader in new areas of the market, like international fixed income. If it can continue to grow assets outside of its big two funds, its position near the top of the industry will be secure.

Who's Winning The ETF Race?

 

Vanguard
$87 billion in AUM
$134 million in estimated fees

Largest ETF: Vanguard Emerging Markets ETF (NYSE Arca: VWO), $17.8 billion

Vanguard has become the fastest-growing ETF provider in the world, and its presence is significantly changing the ETF landscape. The company’s firm focus on low costs and solid core products has resonated with investors. Company assets have more than doubled over the past year, from $40 billion to $87 billion, and the firm led all issuers for net inflows in the month of November, with more than $5 billion in net inflows.

Vanguard offers just 46 ETFs, focusing on core areas of the market and not dipping far into “satellite” funds. The firm has achieved incredibly steady inflows: Whether the market is up, down or sideways, Vanguard seems to show month after month of net growth. Look for Vanguard to continue gaining market share in 2010 and beyond. If recent trends persist, Vanguard will challenge SSgA for the No. 2 ranking in the industry within five years.

 

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