BlackRock, a titan in the U.S. exchange-traded fund (ETF) market, is witnessing a gradual erosion of its commanding lead as competitors like Vanguard and smaller firms carve out larger market shares in the booming $8 trillion industry. This shifting landscape is reshaping the dynamics of the ETF market, where BlackRock’s iShares once held unchallenged dominance.
As of November, BlackRock’s iShares managed about 32% of the U.S. ETF market, a decline from 33.7% in late 2022. This drop is even more significant when considering the end of 2018, where the asset manager commanded nearly 40% of the market, according to Morningstar Direct. This change signals a growing competitiveness in an industry where being everything to everyone, as iShares aspires to be, is increasingly challenging.
Vanguard’s Rising Influence
Vanguard, renowned for its low-cost, broad-based strategies, is steadily gaining ground on BlackRock. Focusing primarily on stocks and bonds, Vanguard’s approach contrasts with iShares’ all-encompassing strategy. “When iShares competes directly with Vanguard on cost, like S&P 500 or total stock market ETFs, investors still reach for Vanguard’s ETF because those cheap, broad-market index funds are what [Vanguard is] best known for,” explained Bryan Armour, Morningstar’s director of passive research for North America. This trend highlights the evolving investor preferences, leaning towards specialized and cost-effective options in ETF investments.
Despite the market share erosion in the U.S., BlackRock’s success story in Europe stands in stark contrast. There, it has maintained a steady 44% share of the $1.7 trillion market over the past five years. This dominance in Europe is a result of BlackRock’s first-mover advantage and its extensive network with institutional clients, as noted by Debbie Fuhr, founder of ETFGI.
In response to the changing U.S. market trends, BlackRock pointed to its impressive $220 billion in global inflows in 2022, asserting its position as a global inflows leader. “We are proud to see that clients globally continue to entrust iShares with more of their new assets than any firm to meet their investment needs,” a BlackRock spokesperson said.
The Evolving ETF Landscape
Behind BlackRock and Vanguard, other players in the U.S. ETF market are also making significant strides. State Street Global Advisors has seen its share decline slightly from almost 17% in 2018 to just under 15% as of December 2023. In contrast, Invesco has seen an uptick from 5% to nearly 6%, per Morningstar data.
Interestingly, emerging players like JPMorgan and Dimensional Fund Advisors are crafting their mark in the ETF arena. Both have developed their ETF line-ups aggressively in recent years, expanding their control to 3% of the U.S. market, up from less than 1% in 2018. These firms have adopted the strategy of converting existing mutual funds into ETFs, allowing them to leverage existing assets rather than starting from scratch.
The European ETF market has also seen significant growth, expanding from about $765 billion at the end of 2018 to more than $1.7 trillion. While iShares leads, Amundi and DWS’s Xtrackers also hold considerable shares, with Vanguard managing about 6.6%, according to ETFGI data.
The competitive landscape in the U.S. is intensifying, with firms vying for client attention and market share. Fuhr comments, “Competition is growing in Europe, and the competition in the U.S. is very high to get to clients.” This competitive environment is reshaping the ETF market, pushing firms to innovate and specialize in their offerings.
As the U.S. ETF market continues to evolve, BlackRock faces the challenge of maintaining its lead amid rising competition. The industry’s dynamics are changing, with a clear shift towards more specialized, cost-effective strategies as firms strive to meet the diverse needs of modern investors. This competitive pressure is not just a challenge for BlackRock but an opportunity for the entire industry to adapt, innovate, and grow.
