One area of concern is exchange-traded funds (ETF). This looked superficially like a success yesterday – with iShares generating $25.2bn in net inflows this quarter, its best showing since 2009. However, there are several problems.
Firstly, a migration into such low-cost, passive products risks a reduction for active equity products and their higher fees.
Secondly, these giant inflows are a reflection of a fast-growing market, rather than growth in market share. BlackRock continues to dominate ETFs, with iShares having $6.87bn under management at the end of the third quarter according to the consultancy ETFGI, compared with $2.58bn and $2.31bn respectively for its nearest rivals, State Street’s SPDR and Vanguard. But year-to-date inflows for both SPDR and Vanguard have respectively grown by 127 per cent and 53 per cent compared with 2011, beating BlackRock’s growth of 50 per cent.
The bind BlackRock is in was visible earlier this week, when it announced it will cut fees on six ETFs to try and stay competitive with rivals. That was fewer than expected, which helps keep revenue up but won’t beat Vanguard, which has dropped MSCI indexes to cut its costs. The world’s largest money manager is a tricky position: caught in a competitive race to rock bottom prices it doesn’t want to win.