Now that last week’s deal between BlackRock and Barclays Global Investors is a done one, many exchange traded fund (ETF) investors may be wondering what it means for them and the industry at large. The deal includes iShares’ popular line of ETFs.
The deal went through for $13.5 billion, and the new company will be renamed as BlackRock Global Investors, reports Joe Morris for Ignites. It still has to undergo regulatory scrutiny, and if it passes, it should close later this year, says Murray Coleman for Index Universe.
If you’re an iShares shareholder, you can relax. This deal will have no ill effects for you.
BlackRock’s CEO Laurence Fink says that they have no plans to raise the expense ratios of iShares ETFs. “I can say with total clarity they’re not going higher,” he told Fox Business on Friday. “We’re going to keep them where they are or bring them down.”
The deal does not include iPath, Barclays line of exchange traded notes (ETNs).
Fink also suggested that BlackRock may introduce actively managed ETFs down the line, as well. iShares currently holds 48% of the ETF market and has funds in 15 countries, so this deal and its impact are going to be closely monitored by investors and the ETF industry.
Barclays originally had a deal with CVC Capital Partners, but a clause in the contract allowed Barclays to continue to solicit other offers until June 18.
Mutually Beneficial?
The relationship could wind up being a complementary one, says Kathleen Pender for The San Francisco Chronicle. While BlackRock caters mainly to institutions, they’re weaker in areas where BGI is strong. BlackRock primarily manages bonds, money market funds and other fixed-income investments; BGI is dominant in stocks.
BGI is also going to have a piece of BlackRock: once the deal is final, Barclays will own nearly 20% ofthe firm. Bank of America will own 34.2%, and PNC will own 24.6%. Both the CEO and president of Barclays will take seats on BlackRock’s board.
An Evolving Industry
BlackRock’s purchase of BGI’s asset management arm and iShares is another signal of the changing face of the ETF industry – we’re seeing more and more mutual fund giants entering the ETF space in some way. Last month, Pacific Investment Management Company (PIMCO) entered the ETF business with the launch of PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ).
In the United States, retail investors are rapidly growing in both size and market activity, in terms of ETF transactions. That’s based on research by Deborah Fuhr, the global head of ETF research and implementation strategy at Barclays Global Investors. Fuhr says, however, that institutional investors still make up the majority of the business.
This could be changing as individual investors exit their cash positions and re-enter the markets when the recovery gets on more solid ground. Retail investors are a growing force that can’t be ignored, and it’s hoped that BlackRock will recognize that.
Vanguard’s Bid
Investors in Vanguard Group, meanwhile, are frustrated by the company’s silence ever since its name emerged as a bidder for iShares, reports Jason Zweig for The Wall Street Journal.
The $5 billion bid, investors feel, smacks of an expansionist mindset that opposes Vanguard’s core mission. Further, investors are upset that Vanguard didn’t communicate with shareholders about its iShares interest. Joe Morris for Ignites posits that perhaps Vanguard founder Jack Bogle was opposed to the bid as well. Bogle won’t say for sure, but he did say that he prefers to see Vanguard grow organically instead of by buying market share.
Vanguard is already a strong force in the ETF business. It’s the third-largest ETF provider with about $51 billion in assets (although its ETF business is just 5% of the firm’s total assets).