BlackRock’s iShares, SSgA and Vanguard are the dominant top three names in the industry. Vanguard has recently etched out a greater share of ETF asset inflows as investors lean toward the firm’s lower fees, adding $41.8 billion this year through Sept. 24, compared to $33.3 for BlackRock and $25.9 for SSgA. BlackRock CEO Laurence Fink has hinted at lower fees on select ETFs as a response, but Luke Montgomery, an analyst with Bernstein Research, calculates that cuts could cost BlackRock 3% to 7% of its overall revenue. [ETF Fee Wars Spill Into Index-Licensing Business]
“I fully expect the cuts to have an impact on their bottom line,” Montgomery said. “I am not convinced that lower fees will result in higher flows.”
Fuhr, on the other hand, argues that smaller fund providers have attracted enough interest in their niche ETF products to be successful or, at least, are willing to tough it out in hopes of garnering greater attention.
“Many firms are going to stick with ETFs for the long run, but we are probably going to see some consolidation,” Fuhr added.
Looking ahead, optimistic ETF observers believe that total global ETF assets could hit $10 trillion by 2020 from the current $1.2 trillion. Bernstein Research, though, estimates that the industry will experience a 13% compound annual growth rate through 2025, which will total $6 trillion.
“Industry growth will disappoint more optimistic estimates and is likely to decelerate beyond the next decade, unless the ETF market can evolve away from its roots as a passive product or break into untapped distribution channels,” Montgomery added.
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Max Chen contributed to this article.