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BlackRock ETFs Near $1 Trillion AUM; But Vanguard Ahead

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BlackRock, Inc. (NYSE:BLK) is close to accumulate $1 trillion in exchange-traded funds (ETFs) under its iShares business, however the world’s largest asset manager continues to lose market share to Vanguard Group.

BlackRock struggles to compete with Vanguard

According to Reuters, retail investors in the United States increasingly prefer to put money to Vanguard Group instead of BlackRock, Inc. (NYSE:BLK). Vanguard Group is popular because of its investor-friendly and low-cost investing strategy.

The total ETF assets of BlackRock, Inc. (NYSE:BLK) at $998 billion is more than the combined ETFs of Vanguard Group and State Street Corporation (NYSE:STT). According to PwC, retail investors currently account more than 50% of the $1.8 trillion in ETF assets under management in the United States.

The world’s largest asset manager still struggles to compete with Vanguard Group, which captured $30.3 billion in net new ETF money in the United States or 43% of the market this year. The iShares ETF business of BlackRock, Inc. (NYSE:BLK) pulled in $24.7 billion or 35% market share.

For years, BlackRock, Inc. (NYSE:BLK) has been losing ETF market share to Vanguard. In 2009, the world’s largest asset manager accounted 47.7% ETF assets under management in the United States compared with Vanguard Group’s 11.7% market share.

Data from Lipper, a unit of Thomson Reuters show that the ETF market share of BlackRock, Inc. (NYSE:BLK) declined to 38.9% while Vanguard Group’s market share increased to 20.6% by the end of May.

BlackRock’s iShares unit failed to achieve objective

Mark Wiedman, head of iShares business at BlackRock, Inc. (NYSE:BLK) admitted that the company failed to achieve its objective in changing its voice for investors.

“Our aspiration is to be number one inflows, and we can’t get there without being higher in the retail market place. We are starting to change our voice for that audience; I would say historically we frankly haven’t done that good a job,” said Wiedman during the company annual meeting in New York last June.

In 2012, BlackRock, Inc. (NYSE:BLK) introduces a line of low-cost “buy and hold ETFs for investors. The world’s largest asset manager also reduced its pricing on ETFs, reorganized its sales team, and implemented a new rebranding campaign.

Since then, BlackRock, Inc. (NYSE:BLK) reduced its prices on 12 funds inclined its S&P Total U.S. Stock Market ETF and high-dividend ETF. The company significantly cut its price for the iShares High Dividend ETF from 04% to 0.12%. The reduction is estimated to cost BlackRock, Inc. (NYSE:BLK) $11.2 million in revenue per year.
Frank Porcelli, head of U.S. Wealth Advisory Business at BlackRock, Inc. (NYSE:BLK) told Reuters, “Every basis point that you cut a fee impacts revenues, but we don’t really look at that – we look at the profitability of our ETF business over the long term.” He added that the impact of the reduction of fees on BlackRock’s profit was “not relevant.”

Vanguard unlikely to overtake BlackRock as largest asset manager

The Vanguard Group is unlikely to overtake BlackRock, Inc. (NYSE:BLK) as the world’s largest asset manager soon. BlackRock has $4.4 trillion in total assets under management.

The world’s largest asset manager managed to triple the size of its iShares business since acquiring it five years ago. BlackRock has $280.5 billion ETF assets outside the United States, which is approximately 36% of the $700 billion total market.

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