Five years ago, BlackRock was losing market share to Vanguard, whose focus on cost-conscious advisers building efficient portfolios paid off as the indexing wave took hold. Vanguard was the top ETF seller in 2010 and 2011.

BlackRock’s response then was to introduce the core funds in 2012 with lower fees than its traditional funds. For example, the iShares MSCI EAFE ETF, which tracks stocks in Europe and Asia, carries an expense ratio of 33 cents for every $100 invested, while the iShares Core MSCI EAFE ETF charges 8 cents. Across the lineup, the core ETFs charge an average of 10 cents, compared with 38 cents for the older funds, according to data compiled by Bloomberg.

The core ETFs have about $300 billion in U.S. assets and are growing at a quicker clip than the non-core funds. Importantly for BlackRock, the success of the core ETFs hasn’t killed the higher-priced business, whose roughly $800 in billion in assets remain the key driver of iShares revenue. In the first quarter of 2017, BlackRock’s traditional U.S. ETFs attracted $24.3 billion compared with $28.8 billion for the core ETFs, according to data compiled by Bloomberg.

No ‘Cannibalizing’

Institutions such as hedge funds have stuck with the pricier ETFs because they treat the products as trading vehicles. They may be betting on market direction, as many did after the election of Donald Trump in November, or hedging a specific position. Often those buyers hold ETFs briefly, so they don’t incur the full cost of the annual expense.
Many of the more expensive ETFs also have options attached to them that create more ways to trade.

“We don’t believe that BlackRock is cannibalizing itself to any meaningful extent,” JPMorgan Chase & Co. analyst Kenneth Worthington said in a research note last month.

BlackRock CEO Laurence D. Fink agrees.

“If we did not do those price cuts last year we would not have had those flows,” Fink said in an April 19 interview.

Reluctant Robo

A comparison of BlackRock’s main ETFs for emerging-market stocks shows how different two seemingly similar products can be. The iShares MSCI Emerging Markets ETF has five times the trading volume and 100 times the options activity of the iShares Core MSCI Emerging Markets ETF, though expenses are five times higher, according to BlackRock data.