Vanguard Gaining On iShares, State Street

Cinthia Murphy
September 10, 2013

When it comes to the distribution of assets among U.S. ETF sponsors, there’s no questioning the dominance of the three ETF providers—iShares, State Street Global Advisors and Vanguard—who control more than 80 percent of the $1.5 trillion now invested in U.S.-listed ETFs. But that doesn’t mean rankings of ETF sponsors is in any way set in stone.

It’s true that those three firms have long been at the top of IndexUniverse’s “ ETF League Table .” iShares alone managed more than a third of ETF assets in the U.S. market at the end of August—or some $588 billion—followed by State Street, with $337 billion in total assets under management, and Vanguard, with $289 billion.

But Vanguard has been slowly and consistently gaining on its competitors. In August alone, the Pennsylvania-based firm was the only ETF provider in the top five to end the month with positive net inflows. Vanguard’s $3.75 billion in new assets came even as the ETF market as a whole faced sizable redemptions—more than $17 billion that month.

State Street, for instance, bled a whopping $19.5 billion in August, or some 5.8 percent of its total assets, while iShares saw investors yank $4.33 billion from its funds in the same period.

Year-to-date, the picture isn’t all that different. While Vanguard has attracted some $37.5 billion in net new assets since the beginning of the year, State Street actually suffered net outflows of $11 billion in the first eight months of 2013—mostly tied to redemptions of more than $20 billion in the SPDR Gold Shares ( GLD | A-100 ). What had been an $85 billion gap between State Street and Vanguard at the end of 2012 became a $48 billion gap as of the end of last month.

Meanwhile, iShares has raked in a relatively modest $6 billion year-to-date, but, due to market performance, the firm has seen its total assets grow by $30 billion to $588 billion.

Vanguard’s at-cost model—the more assets in each and every one of its funds, the cheaper each fund’s fees—is no doubt helping its asset-gathering. The firm is behind some of the cheapest ETFs in the market today. What’s more, those low costs extend to each and every one of its funds, and not just some of them, as is the case, for example, with iShares’ 10-fund lineup of dirt-cheap “Core” ETFs.

But brand loyalty to ETF providers could also be playing a role in how these asset breakdowns shake up, IndexUniverse President of ETF Analytics David Nadig recently suggested. Once a Vanguard client, always a Vanguard client.

Loyal To Pimco Too

That sort of loyalty could also be behind the asset-gathering success at Pimco, where the “Bond King” Bill Gross rules the roost.

Pimco only manages bond ETFs, but in a year when the bond market has been selling off, the Newport Beach, Calif.-based firm has seen its total assets under management grow in 2013.

It has pulled off that feat despite the outflows from some of its biggest funds, such as the Pimco Total Return ETF ( BOND | B-N/A ) that Gross manages.

It appears investors, keen on trimming duration risk at a time when the Federal Reserve looks like it might start tapering five years of quantitative easing, would rather reallocate assets to other Pimco ETFs, such as the Pimco Enhanced Short Maturity Strategy Fund (MINT | A-N/A) . MINT recently became the biggest actively managed U.S.-listed ETF, toppling Gross’ BOND.

Firmwide, Pimco attracted a net of $120 million in assets in August, and now has more than $13.23 billion in total assets, making it the 11 th -largest ETF provider in the United States. Since the beginning of the year through August, the firm has seen its total assets grow by $4.13 billion, or roughly 45 percent.

Finally, WisdomTree’s trajectory to the top five ETF providers is also noteworthy.

The firm, known for its fundamentally weighted strategies, ended 2012 as the 7 th -largest ETF issuer in the market with $18.3 billion in total assets, but by the end of April this year, it surpassed Van Eck and ProShares to take 5 th spot in the ranking.

The New York-based firm is riding the wave of increased popularity of fundamental indexing, and one fund in particular, the WisdomTree Japan Hedged Equity Fund (DXJ | A-45) , has been behind the firm's impressive asset-gathering in the past year.

By August, WisdomTree had more than $29 billion in total assets, a 58 percent jump in assets under management so far this year.


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