Should Investors Be Concerned By BlackRock’s ETF Market Share Loss?

The global exchange-traded funds (ETF) industry continued its brisk growth trajectory over the second quarter of the year, with strong inflows and upbeat asset valuation helping the industry swell to $5 trillion in size by the end of the period. While the total size of ETF assets globally has grown steadily over recent years, the growth over Q1 was muted by the impact of falling asset valuation in the U.S., as U.S.-listed ETFs manage more than 70% of global ETF assets.

Notably, the market share of the five largest ETF providers in the U.S. (BlackRock, Vanguard, State Street, Invesco and Charles Schwab) crossed 90% for the first time in Q2 2018. However, industry leader BlackRock saw a slight reduction in its market share from 39.5% at the end of Q1 2018 to 39% at the end of Q2 2018 – joining State Street, which was the only other major player to witness a reduction in market share.

With ETFs forming the largest chunk of BlackRock’s revenues, a steady decline in market share would clearly be a cause for concern among investors – especially since the ongoing price wars have already weighed on the top line. However, we believe that the lower market share for Q2 was more of a one-off event, and should not have a large impact on the company’s long-term value.

Details about the impact of changes in ETF assets on BlackRock’s valuation can be estimated using our interactive  dashboard on BlackRock’s fundamental value.

Source: U.S. ETF assets by issuer (ETF.com)

ETFs have seen impressive growth over the last decade, thanks to the convenience and transparency they provide investors, in addition to the relatively low fees. Over recent years, the intensifying competition among ETF providers has also triggered a price war among incumbents – making ETFs an even more attractive investment option for retail investors. The table below has been compiled from data gathered by ETF.com and captures the changes in U.S. ETF assets for the five largest ETF providers in the country over the last five quarters. As seen here, the total size of the U.S. ETF industry has increased by roughly 18% over the last 12 months. Invesco and Charles Schwab stand out with annual growth of nearly 50% in their asset bases. While Invesco achieved this thanks to its acquisition of $39 billion in ETF assets from Guggenheim Investments, Schwab’s growth has been organic and can be attributed in large part to its ability to cross-sell ETFs to its brokerage customers.

Notably, Q2 2018 saw BlackRock report year-on-year growth in assets that was lower than the industry average. This marks a departure from the above-average growth for the asset management leader each quarter over recent years, and resulted in a small reduction in its market share.

We believe that the slight reduction in market share over Q2 is not a cause for concern yet, especially given the sheer size of the company’s asset base. After all, the growth in BlackRock’s ETF base was only slightly below that for the industry (16.9% vs 18.2%). In contrast, peer State Street has reported ETF growth at rates considerably below industry average as it focuses almost exclusively on institutional investors. BlackRock’s long-term strategy of targeting the retail investment segment, and its industry-leading position, should continue to help the company’s ETF assets grow at a strong rate over the foreseeable future.

You can find additional info in our interactive dashboard for BlackRock | State Street

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