BlackRock Takes Aim at Smaller Providers With ETF Starts

BlackRock Inc. (BLK), the world’s biggest provider of exchange-traded funds, is putting the heat on smaller competitors.

BlackRock and WisdomTree Investment Inc., the firm where former hedge-fund manager Michael Steinhardt is both non-executive chairman and the largest shareholder, will each open ETFs tomorrow targeting the same hot spot in the market, and at first glance both come with the same price tag. The twist: BlackRock’s will be free for a year.

“They’re making a run at a number of smaller competitors, not just WisdomTree,” Ben Johnson, director of passive funds research at Morningstar Inc., said in a telephone interview.

BlackRock, with $660 billion in U.S. ETF assets in its iShares unit, is taking on specialized providers by rolling out products such as currency-hedged ETFs, which will compete with funds run by WisdomTree, and low-volatility ETFs in a challenge to Invesco Ltd.’s PowerShares unit. The firm, run by Laurence D. Fink, also introduced fixed-maturity bond ETFs to compete with Guggenheim Partners LLC, Johnson said.

BlackRock will start the iShares Treasury Floating Rate ETF tomorrow, the same day as the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), according to data compiled by Bloomberg. Both look to capitalize on the demand for bond investments that are protected against interest-rate increases. Each will have an annual expense ratio of 0.15 percent. BlackRock will waive the entire fee through Feb. 28, 2015, the New York-based company said in a Jan. 31 filing.

Client Needs

The fund will be free for more than a year “to best meet the needs of our clients and to prevent the fund from experiencing a negative 30-day SEC yield in the current interest rate environment,” Melissa Garville, a spokeswoman for BlackRock, said in an e-mail.

BlackRock has waived the entire management fee for one additional ETF, the $2.4 billion iShares Short Treasury Bond ETF, for the same reasons, Garville said.

“WisdomTree’s track record of ETF innovation speaks for itself; we are no stranger to competition and we are committed to pioneering thoughtful investment solutions,” Stuart Bell, a spokesman for WisdomTree, said in an e-mail.

BlackRock is also introducing three international equity ETFs tomorrow that seek to minimize the impact of currency swings, according to data compiled by Bloomberg. The funds will invest in Japan, Germany and an index for developed non-U.S. markets.

Currency-hedged ETFs are a strength of WisdomTree’s. Its largest fund is the $12.6 billion Japan Hedged Equity Fund (DXJ), holding about 36 percent of the firm’s assets.

WisdomTree manages $34.9 billion in U.S. ETFs, making it the fifth-biggest provider, according to Morningstar.

Bloomberg LP, the parent of Bloomberg News, creates indexes and licenses their use for a fee to companies including WisdomTree.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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