An Increase in ETF Interest by Retail Investors: Lucas Montgomery, Research Analyst at Sanford C. Bernstein & Co., LLC, Interviews with The Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - July 17, 2013 - The Wall Street Transcript has just published its U.S. Banking Review 2013 Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: U.S. Banking Review 2013

Companies include: T. Rowe Price Group, Inc. (TROW), BlackRock, Inc. (BLK), Franklin Resources Inc. (BEN), Invesco Ltd. (IVZ), State Street Corp. (STT), The Bank of New York Mellon Co (BK), Northern Trust Corporation (NTRS), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), TD AMERITRADE Holding Corporat (AMTD), Charles Schwab Corp. (SCHW), IntercontinentalExchange, Inc. (ICE), CME Group Inc. (CME), Wells Fargo & Company (WFC), Bank of America Corporation (BAC), UBS AG (UBS) and many more.

In the following excerpt from the U.S. Banking Review 2013 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: You are concerned that BlackRock will encounter challenges in capturing the U.S. retail ETF market segment. What are the implications of that for BlackRock, and comparatively, who is doing a good job capturing that market?

Mr. Montgomery: In many respects, BlackRock is the market leader in ETFs; is has a huge market share. I think in the U.S. it's something like 40%; abroad, it's something also about 40%, and they are arguably the only scale competitor. So they are the 800-pound gorilla in the ETF subsector, and they have a great business.

The challenge I have been concerned about is that much of the incremental growth in the ETF market has been occurring in the retail segment, and there has been evidence that BlackRock is not properly situated to capture that growth. Frankly, if you asked me a couple of months ago, I would have had a slightly more negative view on BlackRock's ETF platform, even going so far as to say they possibly overpaid for BGI, since the growth of that platform was below expectations and maybe not sufficient enough to justify the transaction price. We thought the market had overdone it on the stock price, but we were very focused on that aspect of the story.

Then during the fourth quarter their ETFs experienced truly remarkable net new flows. We don't know exactly what changed. It's probable there was simply latent demand among the firm's core institutional ETF customer, and those users came back into the market. But for me and a lot of other investors, there was affirmation that there is indeed a lot of flow power in BlackRock's ETF platform, so over the last few months, investors have become less concerned about the growth of that platform, and you've seen a significant discount in the stock related to that issue evaporate. As a result, it's been one of the best performing asset managers.

Now, I still have some concerns though. The concern is that if you look over the last three years and perform a comparison of like products between BlackRock and Vanguard, they have...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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