BlackRock Continues To Make The Most Of The ETF Growth Story

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The exchange-traded fund (ETF) industry saw one of its largest monthly gains in November, with data compiled by ETF.com showing that U.S.-listed ETFs witnessed $42 billion in net inflows for the month. [1] The strong performance for the extremely popular investment channel helped asset managers rake in more than $192 billion in net new money across their ETF offerings for the eleven-month period this year – comfortably surpassing the $188 billion record figure for full-year 2013. U.S.-listed ETFs are just shy of $2 trillion in total assets – a threshold they are very likely to cross by the end of the year thanks to the record run for the equity market over recent weeks.

BlackRock (NYSE:BLK) gained the most over the year, with the financial institution capitalizing on its position as the world’s largest asset manager as well as world’s largest ETF provider to report net inflows of $71.4 billion in the U.S. and almost $90 billion worldwide. [2] Vanguard, which saw an exceptionally strong start to the year (see Vanguard Trumps BlackRock, State Street To Record Highest ETF Inflows In Q1), comes in a close second with $63.5 billion in U.S. inflows and $75 billion in global inflows. This has brought Vanguard within striking distance of State Street (NYSE:STT) for the position of the second largest U.S.-listed ETF provider.

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The best indicator of the popularity of ETFs and other exchange traded products (ETPs) is the fact that the industry has grown to larger than $2.7 trillion in size (as of November 2014) from being a largely obscure investment option at the turn of the century. [3] The reason for this growth is that ETFs provide investors a cheap and convenient way to put their money into fixed income, equity, currency, commodities and other investment markets. And with the popularity really only skyrocketing in the past few years, the industry has the potential to continue to grow considerably in the future.

With almost $2 trillion in assets under management, U.S.-listed ETFs account for nearly 75% of all ETF assets globally. This is why the largest players in the U.S. ETF industry have a sizable share of the worldwide industry. The table below uses data compiled by ETF.com and State Street, and details the assets under management for the three largest ETF providers globally as well as in the U.S.

U.S. ETF Assets ($ bil) U.S. ETF Market Share Global ETF Assets ($ bil) Global ETF Market Share
BlackRock 760.6 38.3% 1,037.6 38.0%
State Street 432.8 21.8% 464.1 17.0%
Vanguard 422.1 21.2% 439.5 16.1%
Top 3 Total 1,615.4 81.3% 1,941.2 71.0%
Industry Total 1,986.9 100.0% 2,732.8 100.0%

The table makes BlackRock’s strong position in the ETF industry quite clear, with the asset management giant accounting for 38% of the industry in the U.S. as well as globally. While State Street and Vanguard have a strong presence in the U.S., the small difference between their asset base for ETFs listed in the U.S. and those listed outside indicates that they have not gained much traction abroad. Notably, these three companies account for more than 80% of all ETF assets in the U.S. and more than 70% of all ETF assets worldwide.

Since BlackRock acquired its iShares line of ETFs from Barclays Global Investors in late 2009, the investment product has seen the fastest growth among all that the company has to offer. And the brisk growth pace is not expected to slow down any time soon. BlackRock’s ETF assets are roughly split in a 70:30 ratio between equity iShares and fixed-income iShares. We believe that equity iShares will be the single largest driver of value for BlackRock in the future, as we estimate a 10% annual growth in size of their assets over coming years. You can see how a faster or slower rate of growth in these assets affects BlackRock’s share value by making changes to the chart below.

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Notes:
  1. 2014 ETF Flows Top 2013 Record In Nov, ETF.com, Dec 1 2014 []
  2. BlackRock leads Vanguard as ETFs race toward a record year, Investment News, Dec 17 2014 []
  3. Global ETF Snapshot, State Street Report []