The exchange traded fund industry is dominated by a group of large players, and with the new alliance between Fidelity Investments and BlackRock, some fear that small players and new entrants could get bullied around.
According to an Ignites poll, 54% of respondents agreed that the partnership would price out the ETF market for good, with 44% of respondents believing that “only truly niche players have a place” and 10% saying new entrants in general will be priced out. [Tom Lydon Discusses the Fidelity-BlackRock ETF Deal]
On the other hand, 45% of those polled think “it is too early to claim that aggressive price discounting is shutting out new entrants” while 12% still hold hope that newcomers can find opportunities.
The recently announced Fidelity/BlackRock partnership would bring together both firms on manufacturing and distributing ETF investments, including raising the number of commission-free iShares ETFs on Fidelity’s trading platform.
Ben Johnson, director of passive fund research, though, explains that it is not so much as a high barrier to enter the ETF market as it is the ability for firms to succeed in the long run. [Fidelity-BlackRock Deal May Speed ETFs in 401(k) Plans]
“This is a market defined by fairly low barriers to entry, but very high barriers to long-run success,” Johnson said in the article, noting that scale and distribution key drivers of success. “The combination of the world’s largest ETF provider with one of the largest brokerage firms won’t make it any more challenging for new firms to enter the ETF market, though it could make their odds of succeeding slightly slimmer.”
Nevertheless, niche strategies have a place in the ETF market. For instance, low-volatility ETFs have attracted a lot of attention as investors sought equity exposure hedged against potential market oscillations. It is up to would-be providers to find the right strategy. [Low-Volatility ETF Doubles S&P 500 Risk-Adjusted Return]
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.