iShares Brand Faces Competition, Study Says

October 22, 2010

iShares remains by far the most recognized brand among advisers, but that may be changing.

iShares is by far the most widely recognized U.S. ETF company among financial advisers, but that recognition is fading, in part at the expense of Vanguard, according to a new survey.

Indeed, the latest study from Cogent Research dovetails with a separate study the Cambridge, Mass.-based firm published last month showing that Vanguard was garnering more loyalty among advisers than any other ETF firm, notwithstanding iShares’ huge footprint in the industry.

iShares is the biggest ETF company in the world, with $426.52 billion in assets as of Oct. 21, according to data compiled by IndexUniverse.com. But Vanguard, the No. 3 U.S. ETF firm, with $133.99 billion in assets, is bridging the gap.

“There is clearly a progression here, and the momentum is with Vanguard,” Christy White, principal at Cogent Research, told IndexUniverse in a telephone interview.

Cogent’s latest report, a survey of 1,500 advisers, found that 32 percent said iShares was the firm they felt most connected to, down from 35 percent a year ago. Conversely, Vanguard’s number rose to 8 percent, from 4 percent a year ago.

Vanguard Rising

By now it’s almost cliché in the ETF industry to cart out the Vanguard Emerging Markets ETF (NYSEArca: VWO) as the perfect example of Vanguard’s success at the expense of iShares.

VWO hauled in $13.32 billion this year through the third quarter, compared with $2.78 billion for the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). EEM is still the bigger of the two emerging markets funds, with $47.66 billion in assets compared with VWO’s $40.32 billion.

But ETF industry sources widely believe that it’s only a matter of time before VWO overtakes EEM and, moreover, the time might be ripe to start asking how soon Vanguard might overtake iShares and the No. 2 U.S. ETF provider, State Street Global Advisors (SSgA), and become the biggest ETF firm in the world.

“Vanguard is doing a lot of things right, from establishing an emotional connection to advisers to offering a product line with very competitive pricing,” White said.

VWO has a 0.27 percent expense ratio, compared to 0.72 for EEM. The only other ETF company that has made low pricing a competitive imperative is Schwab, as we wrote about back in June in a story titled "Schwab Declares Price War With ETF Fee Cuts."

The other firms in Cogent’s "Advisor Touchpoints" report measuring success that ETF providers are having in establishing connection with advisers included PowerShares (18 percent), ProShares (8 percent) and SSgA (3 percent), says White.

Mutual Funds Vs. ETFs

The report, which also looked into variable annuity providers and mutual fund companies, also revealed another trend: ETFs are clearly stealing market share from mutual funds.

While every ETF provider except iShares saw significant increases in the number of advisers that feel connected to them, the data for mutual funds was mixed, White says.

“Things are shaking up a bit,” said White. “I don’t expect ETFs to take over mutual funds anytime soon, but the momentum is clearly with them.”

 

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