BlackRock’s iShares go many places Vanguard does not, offering what the firm calls “precision instruments” that aim to do everything from lowering volatility to hedging currency risk connected with an international stock position. IShares also continues to capture a bigger share of institutional money within ETFs.
In attacking niche areas, BlackRock draws a line where it thinks ETFs become too complex. Fink has said the firm will never offer ETFs that allow investors to take leveraged or inverse bets on an index.
One of Wiedman’s best allies in gathering institutional clients has been the wave of regulation that hit banks since the financial crisis. Required to hold more capital against liabilities under Basel 3 and more limited in making investments with their own money because of the Volcker Rule, banks now have less room available on their balance sheets to make markets.
Assets Surge
That has already transformed the bond world. With banks less engaged and trading costs rising as a result, many investors have turned to fixed-income ETFs, especially in less liquid corners of the market. At its peak in September 2012, the iShares iBoxx High Yield Corporate Bond ETF held $17.4 billion. That’s more than 20 times bigger than it was in September 2008, when Lehman Brothers Holdings Inc. collapsed.
“How much was driven by bank regulations? I don’t know,” Wiedman said. “But that fund was nowhere. Then Lehman failed and suddenly people discovered it.”
The withdrawal of banks could have a similar impact elsewhere, Wiedman said.
“There’s a permanent shift happening toward ETFs over futures for unlevered investors.”