Competitors to BlackRock Inc. are trying to loosen the investing giant’s stranglehold on Europe’s $153 billion bond exchange-traded fund market. They’re struggling to make much headway.
The company’s market share has increased in recent years to 67 percent, data from Morningstar Inc. show, even as competitors add new funds and offer low fees. Rivals are being stymied because BlackRock’s iShares can offer investors access to European bond funds holding 93 billion euros ($101 billion) of net assets, or more than nine times the tally at nearest rival Deutsche Bank AG.
“There is a huge first-mover advantage,” said Deborah Fuhr, managing partner at research company ETFGI. “It’s difficult to launch successful ‘me–too’ products because you’re directly competing with a fund that already has assets and trading volume.”
Investors have poured about $9 billion into bond ETFs in Europe, the Middle East and Africa this year, according to BlackRock data, partly because they are becoming more accepted as an easier trading option than illiquid bond markets.
New European Union rules coming into force in January may also boost the products’ popularity by making trading volumes more readily available.
“There’s quite a bit of investment going into bond ETFs,” said Blanca Koenig, a senior product strategist at Deutsche Bank’s X-trackers. “It’s certainly an area we want to grow.”
X-trackers is seeking to expand its 7 percent market share partly by converting many of its funds so that they own bonds rather than using swaps to follow an index. That mirrors what BlackRock does. So-called physical ETFs have been more popular with investors in recent years, said Koenig, who joined X-trackers from BlackRock in 2015.
Low Fees
Some providers are trying to lure investors by offering low fees. For instance, BlackRock charges 0.2 percent for investing in its iShares Core U.K. Gilts fund. State Street Corp.’s SPDR has a 0.15 percent levy for a similar ETF, while Vanguard Group’s fees are 0.12 percent. Lyxor Asset Management is even cheaper at 0.07 percent.
Still, investors may accept higher fees to invest in large ETFs because these products are generally easier to trade. The iShares gilt fund has 1.8 billion euros of assets, at least 10 times more than the State Street, Vanguard and Lyxor funds.