Advisors Driving Growth at ETF ‘Big Three’

Wider adoption of ETFs among fee-based financial advisors is helping drive the industry’s growth but also fueling concerns it’s getting more difficult for newer entrants to compete.

The so-called Big Three of BlackRock (iShares), State Street and Vanguard control the U.S. ETF market to such an extent “that rivals face large hurdles if they want to gain ground in passive investing, research from the fundtracker Morningstar suggests,” according to the Financial Times.

Together, the trio controls more than 80% market share. [Smaller, New ETF Providers Try to Chip Away at ‘Big Three’]

“Advisors say let’s do ETFs and index trackers because they are lower cost and allow us to get out of an investment quickly,” said Greggory Warren, a senior stock analyst with Morningstar, in the report.

After the Big Three, Invesco’s ETF business PowerShares is the next-largest provider at 5% of the market. [PowerShares ETF Business Helping Power Invesco]

Despite the asset dominance of the three biggest firms, smaller and newer providers are trying to make a splash with alternative ETFs tracking nontraditional benchmarks, for example.

“Asset managers are looking for more ETF-appropriate indices,” said Jonathan Horton, president of FTSE Americas and head of FTSE’s ETP service unit, in an interview. “We’re increasingly working with ETF issuers to develop index solutions.”

He said there are two key trends in the global ETF business. The first is asset concentration, with the bulk of the inflows stilling going to the largest firms. [ETF Business Getting Less Top-Heavy as Inflows Rise]

Yet Horton noted that fragmentation is another trend as smaller providers introduce more ETFs. For index providers, this means opportunities to develop niche benchmarks and to work with providers to develop liquid solutions. [FTSE Hits Century Mark]

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.