Vanguard had $325.5 billion in ETF assets as of Dec. 3, nearly $43 billion behind State Street Global Advisors for the second spot and barely more than half the ETF assets held by BlackRock’s (BLK) iShares unit.
Still, Pennsylvania-based Vanguard, one of the leaders in providing low-cost access to mutual funds, has ascended to third spot among U.S. ETF issuers. The company’s reputation for low-cost leadership, which has included fee cuts on over a third of its 67-ETF lineup over the past year, is a primary reason the firm has been so proficient at gathering ETF assets. [Vanguard Cuts Fees on 22 ETFs]
This year, Vanguard is the leader when it comes to gathering assets. “Vanguard leads with $51 billion, or 32 cents out of every dollar invested in an ETF, up from 28 cents last year. It has seen 21 of its 67 ETFs grow by at least $1 billion in 2013,” reports Eric Balchunas for Bloomberg.
Investors like Vanguard ETFs, for among other reasons, low fees and number of holdings. For example, a “$10,000 investment gets you a deep bench of 84 securities per dollar with Vanguard, 10 times the eight securities per dollar you get with iShares and State Street,” according to Bloomberg.
Favorable costs does not mean Vanguard is immune from competition. Actually, the opposite is true. Vanguard had undercut State Street on fees for sector ETFs, but Fidelity introduced 10 sector ETFs in October all with fees of 0.12%, less than what Vanguard charges for funds like the Vanguard Health Care ETF (VHT) . [Fidelity Puts Vanguard on Notice]
At the sector level, apparently fees are not the most important thing to advisors and investors. State Street’s nine sector SPDRs have seen compound annual growth of 30% in the past three years despite being slightly more expensive than equivalent Vanguard offerings. Only one Vanguard sector ETF, the Vanguard Information Technology ETF (VGT) ranks among the 100 largest ETFs but all nine SPDRs are on that list. [SPDRs Flourish in the Face of Rising Competition]
BlackRock is also not taking the competition lightly. Last year, the firm introduced the core series of ETFs, a suite of 10 ETFs with lower fees designed for cost-conscious, conservative investors. The iShares Core MSCI Emerging Markets ETF (IEMG) has the same annual fees as the Vanguard FTSE Emerging Markets ETF (VWO) at 0.18%, but IEMG has outpaced VWO this year.
A similar scenario is seen with Europe ETFs. The Vanguard FTSE Europe ETF (VGK) is the largest Europe ETF and it is cheaper than the SPDR EURO STOXX 50 (FEZ) by 17 basis points. However, FEZ outperformed VGK by 260 basis points for the 12-month period ending Dec. 3. [Settling the Europe ETF Debate]
Vanguard FTSE Europe ETF