There are 33 ETF providers in the U.S., but the top three firms account for 84% of the assets, according to research firm ETFGI. The so-called Big Three of the ETF business are BlackRock’s iShares, State Street Global Advisors and Vanguard.
Even as the exchange traded fund industry is on pace for an all-time inflow record, some smaller firms are struggling to maintain a presence in the space, contending with big providers that are set to grow bigger.
From the start of the year through Sept. 24, net U.S. ETF inflows totaled $130.9 billion, compared to $117 billion for all of 2011, $123 billion in 2010 and $119.4 billion in 2009, reports Randy Diamond for Pensions & Investments.
Nevertheless, some fund sponsors, such as Russell Investments and FocusShares, have closed ETF products after operating under two years and failing to acquire the necessary traction among investors. [ETF Closures Reveal Fierce Competition for Market Share]
“We are in a difficult financial environment,” Deborah Fuhr, a principal at ETFGI, said in the article. “Look at the bank and brokerage industries and how many people are cutting head count. Financial firms are asking, ‘Where should I be spending if I have limited resources?’”
Meanwhile, some other firms are eying the ETF space as the next frontier. For instance, Fidelity Investments reportedly has Anthony Rochte, former senior managing director at State Street Global Advisors, working on active ETFs based on the firm’s “Select” equity mutual funds. Moreover, other mutual fund managers, such as Legg Mason, T. Rowe Price Group and John Hancock, among others, are also keeping tabs on the ETF space.
James Pacetti, an ETF industry consultant with S-Network Global Indexes, expects Fidelity to offer clones of some of its sector mutual funds to efficiently utilize its existing investment personnel and distribution network.
Pacetti also notices that bigger money managers are positioning themselves in the ETF place while smaller companies are struggling to stay afloat. [Smaller ETF Firms Feeling the Heat Amid Consolidation]
“You are going to have a big shakeout with the smaller guys who have no distribution,” Pacetti said in the article.