Is IVV And The Core Brand Off And Running?

Paul Baiocchi
November 5, 2012

We won’t begin to see the full ramifications of BlackRock’s new strategy for at least a few years, but you have to wonder if the company’s Chief Executive Officer Laurence Fink is patting himself on the back.

What I’m talking about is last month’s flows data showing that the iShares Core S'P 500 ETF (IVV) was the top net gainer, with $2 billion in creations.

If those inflows keep coming, it would surely be a positive development for BlackRock’s iShares unit, which has been ceding ground in the pure beta ETF space to the likes of Vanguard Group in the past few years.

The fund, while large at $33 billion in assets, hasn’t exactly been a mainstay of the top creations list in the past few years.

So, did cutting the annual expense ratio to 0.07 percent from 0.09 percent bring a few new investors into the iShares tent?

Maybe so, maybe not; but it’s worth asking.

Large-Cap Key

At the very least, you could argue that the large-cap ETF battleground is the single most important plot of land in the industry, with more than $200 billion in assets currently up for grabs.

More specifically, the battle for S'P 500 trackers is a dogfight, with more than half of large-cap ETF assets tracking the index.

But it’s not just about the assets. This segment of the market is in many ways the stepping stone for ETF assets. Large-cap equities are often the first allocation decision an advisor makes.

From the perspective of the brand, if your fund is the first ETF purchase advisors make, the easier it will be to keep them in your product suite.

That would make BlackRock’s incentive to lower fees on IVV that much greater.

Although BlackRock’s iShares unit tops the ETF league table by a wide margin, the company understands how critical being first and biggest is. The more advisors who adopt ETFs as their primary investment tool, the larger the share of ETF assets institutional investors will represent.

Because the large players like BlackRock and State Street Global Advisors offer exposure to index suites, with a large part of the sales pitch being the avoidance of overlap, this first step become increasingly important.

So we’re looking closely at those $2 billion in flows, mindful that upward of half of those flows came before the price cut became effective on Oct. 17, and that the Vanguard S'P 500 ETF (VOO), at 0.05 percent a year, is still cheaper than IVV.

At the same time, all this is not to say that the battle of S'P 500 funds is the only one that matters.

If you think about certain ETF strategies as “entry level,” then the whole “Core” brand restructuring makes a lot more sense.



As an example, the first emerging markets ETF an investor buys may be his or her first ETF buy and, if that is the case, issuers have an incentive to lead in that segment and in any other any way they can.

If that means operating those funds at a loss while generating profits via securities lending, and by marketing higher-fee, quasi-active funds, or separately managed accounts, so be it.

I’m not saying that BlackRock is definitely running IVV or its new iShares Core Emerging Markets ETF (IEMG) at a loss—though some industry sources suspect it—but I am saying that these segments mean a lot to the iShares’ Core brand.

In the end, net inflows into the S'P 500 fund in a single month is hardly breaking news, especially at a time when there was so much publicity centered on the issuer. It could end up being just a blip on the radar.

But, if BlackRock was looking for a quick surge in interest, it appears it may have gotten just that.

At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Baiocchi at


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