Vanguard Group trounced its rivals among US exchange-traded fund providers in the race for market share in 2014, exploiting its low-fee strategy to grow more than three times as fast as any of its competitors. The two biggest ETF providers, BlackRock and State Street, lost share last year.
Malvern, Pennsylvania-based Vanguard has more than doubled its market share to 21.3 percent since 2008, when it had just 8.6 percent. Vanguard has attributed its market share gains to low pricing and to an effort to increase fund sales through advisers and not just directly to individual investors.
By contrast, BlackRock and State Street have been giving up share for years, with Black Rock falling from a 48 percent share at the end of 2008 to 37.9 percent now, and State Street dropping from 30 percent to 22.7 percent in the same period, according to Lipper data. The fourth- and fifth ranked providers, Invesco Ltd's PowerShares and WisdomTree Investments Inc, also lost share.
Vanguard's 1.66 percent gain was more three times greater than its next fastest growing rival, First Trust, which gained 0.5 percent. BlackRock fell 0.97 percent in 2014 and State Street lost 0.31 percent of market share on the year, according to a Reuters data analysis.
The changes in market ownership reflect ground gained from the rise of newer entrants which have chipped away at the market share of the biggest firms. There were some 62 US providers at the end of 2014, up from 36 just five years ago, according to data from ETF.com, and industry observers say more are expected to join.
For ETF providers like State Street, PowerShares and WisdomTree, market share changes can also be driven by a heavy concentration of assets in a single fund or investing niche, said Morningstar analyst Ben Johnson.
"They all have whales in their line-up," he said.
State Street's SPDR Gold ETF, which tracks the price of gold bullion, had $3.2 billion in net outflows in 2014, while PowerShares' massive QQQ Fund, which tracks the Nasdaq 100 index, had $11.3 billion in net outflows. WisdomTree's flagship Japan Hedged Equity Fund, which tracks a basket of Japanese stocks and hedges for currency fluctuations between the US dollar and the Japanese yen, had $428.5 million in net outflows.
The ascendancy of Vanguard has been a long, entrenched trend that has "really accelerated" in the last couple of years, said Morningstar's Johnson.
The flow of new ETF money stems from an effort the company initiated three years ago to boost sales and support staff for advisers, said Vanguard's Chief Investment Officer Tim Buckley.
"We recognised we needed to invest more in supporting advisers," Buckley said in a telephone interview. "That has built momentum and we continue to be earning people's trust."
To be sure, the ETF space is expanding rapidly enough to give even some share-losers record inflows, and BlackRock Chief Larry Fink has said they anticipated losing market share given the growing number of competitors and products over the years.
"We never assumed those market share numbers would be permanent," when BlackRock bought Barclays Global Investors in 2009, he told Reuters in an interview Thursday, noting they are more concerned with flows than market share.
BlackRock has put more emphasis on marketing its pricier products and less on winning the ETF price wars.
The changing pie is a sign to smaller firms, like relative newcomer VelocityShares, which has already won $2.7 billion in assets since 2009, that they can elbow their way in. And it's a note to larger ones that they might have to be more competitive in fighting for investor assets by being more targeted with funds, competing on fees or shaving inventory that doesn't attract assets.
BlackRock, for one, closed some 28 ETFs last year, the most for the company in the past five years, while PIMCO shuttered 5 ETFs and ProShares closed 17. Many of those funds were in niche areas or fell on the pricier side of the pool.
"Fee pressure is an unstoppable force," said Edward Jones analyst Jim Shanahan.
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