BlackRock leads Vanguard as ETFs race toward a record year

Firms remain in a tight contest for buy-and-hold index investors' money

Dec 17, 2014 @ 3:53 pm

By Trevor Hunnicutt

BlackRock Inc. is leading the ETF industry to what is likely to be another record year, as the firm remains in tight competition with the Vanguard Group Inc. for money flowing into passively managed investments.

With exchange-traded funds overall closing in on another historic asset-gathering year that would crack the $2 trillion milestone in the U.S., the two money managers accounted for $7 of every $10 that have flown into exchange-traded funds this year, according to an InvestmentNews analysis of data by Morningstar Inc.

Through November, funds in total had taken in in $192 billion, up from the $188 billion record set last year, according to ETF.com

BlackRock on Wednesday said its iShares division brought in $89.7 billion in 2014 through Nov. 30, including $71.4 billion in the U.S.

The ETF unit, acquired from Barclays PLC in 2009, was an early proponent of the largely index-based funds in the 1990s and now manages $760 billion.

“More and more investors are using ETFs as strategic, buy-and-hold investments, and in 2014, we also saw a continuing evolution of how clients use ETFs — from capital market participants looking for efficient substitutes for futures and swaps, to investors seeking more precise exposures to express a particular market view,” said Mark Wiedman, global head of iShares for BlackRock.

Vanguard, meanwhile, said inflows globally totaled $75 billion at the end of November, including $63.5 billion in the U.S.

The company, known for the low-cost, passive ethos of its founder John C. Bogle, has enjoyed success despite building a brand in ETFs later than a number of competitors, offering its first in 2001.

But Vanguard, with a total of $423 billion in U.S. ETFs, is now poised to take the No. 2 slot in the ETF business from State Street Corp., which manages a $433 billion ETF business that includes the oldest and largest such fund trading on exchanges, the SPDR S&P 500 ETF (SPY).

“With us not paying direct commission that had shut us out of many areas of the market with traditional mutual fund type investments, ETFs have provided us a way to interact with financial advisers and other intermediaries across the globe,” said Joel Dickson, senior investment strategist at Vanguard. “We are not focused on what others are doing. We are more focused on what we are doing, and we think the results will follow that.”

The largest inflows have been to core product offerings, with broad exposure to stock and bond markets.

There's a 'victory of Vanilla' story here,” said Dave Nadig, chief investment officer at ETF.com. “The ETF revolution may have made headlines in 2013 and 2014 with low-vol strategies, currency hedging and smart beta, but real investors continue to recognize that low-cost, traditional indexing is the long-term winning strategy.”

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