BlackRock Inc. signaled its willingness to engage in a price war last October by cutting fees on 15 exchange-traded funds and going head-to-head with faster-growing ETF rivals Vanguard Group and Charles Schwab Corp. in the fight for investors flocking to passive products.
“A new era is dawning for advisors and long-term investors,” Mark Wiedman, global head of iShares, BlackRock’s $1.4 trillion ETF unit, said at the time.
What he didn’t mention was that prices weren’t changing on most of BlackRock’s ETF assets -- where fees remain far higher for institutional buyers who crave easy-to-trade securities. The discounts are aimed at retail customers and financial advisors who mostly seek cheap funds.
BlackRock is basing its pricing on the idea that not all ETF buyers are the same, and the strategy seems to be working. BlackRock attracted a record $64.5 billion into its iShares products during the first quarter, with money going into both types of ETFs.
The company has been able to remain the top seller of U.S. ETFs while fending off Vanguard and shielding much of its business from the punishing effects of price competition.
“By skill or luck, they have pulled it off,” said Dave Nadig, chief executive officer of San Francisco-based research firm ETF.com. “If you are BlackRock you have to be happy.”
Fee Squeeze
Still, BlackRock isn’t immune to price pressures. Over the past year, its revenue grew more slowly than its assets, reflecting the squeeze on fees across the fund industry.
iShares is the largest force in the expanding market for ETFs, which generally track indexes while trading all day like stocks. U.S.-listed ETFs have attracted $154 billion in cash this year, with BlackRock hauling in the most, followed by Vanguard, the second-biggest provider by assets.
“Investors continue to gravitate to low-cost funds and ETFs,” said Freddy Martino, a spokesman for Vanguard. “At Vanguard, they can be assured of complex-wide low costs all the time.”