BlackRock Inc.’s Laurence D. Fink, who heads the world’s largest asset manager, said the firm will announce fee reductions for large exchange-traded funds next quarter, after losing market share to Vanguard Group Inc.
“We expect to be announcing a whole strategy in how are we addressing the fee issue related to these large, liquid, core types of ETFs,” Fink, who is chief executive officer of New York-based BlackRock, said today at the Barclays 2012 Global Financial Services Conference.
BlackRock, the world’s largest ETF provider, has lost market share as Vanguard has attracted investors. BlackRock’s U.S. market share in the ETF business fell 1.6 percentage points this year through July to about 41 percent, compared with an increase of 1.8 percentage points for Vanguard to 18 percent, according to a report by State Street Global Advisors.
Fink, whose company drew about $20 billion in deposits into its iShares ETFs in the U.S., according to the State Street report, said in July that he wasn’t pleased with BlackRock’s ETF market share in the second quarter.
“You saw risk off, even in ETFs, you had many flows into what I would call the commoditized ETFs, the large, index products, and Vanguard has taken a lot of the share of those flows in those products,” Fink said in an interview July 18.
BlackRock may need to cut fees for certain products to maintain or attract institutional loyalty and win more individual investors, according to a Sept. 5 research note by Sanford C. Bernstein & Co.
IShares S&P 500 Index Fund charges 0.09 percent, compared with 0.05 percent for Vanguard S&P 500 ETF. IShares Barclays Aggregate Bond Fund charges 0.2 percent, while Vanguard Total Bond Market ETF charges 0.1 percent. The difference is even more pronounced in emerging markets, with iShares MSCI Emerging Markets Index charging 0.67 percent compared with 0.2 percent for Vanguard MSCI Emerging Markets ETF.
Smaller and less liquid products aren’t under pressure to cut fees, and the firm is seeing increasing margins in other ETFs, Fink said during today’s conference. BlackRock’s revenue for U.S. ETFs has increased 8 percent this year and 13 percent outside of the U.S., Fink said.
“Most importantly, where we’re seeing seeing huge opportunity is in the structuring of ETFs on behalf of our clients,” Fink said.
Less liquidity in the fixed-income market means an opportunity for BlackRock to help institutional clients swap bonds for tactical trading of fixed-income ETFs, said Fink.
BlackRock, which manages $3.56 trillion in assets, has integrated the leadership of retail and iShares to improve cross-selling of products, Fink said. The firm announced a reorganization in August that included putting Robert Fairbairn in charge of sales of iShares and retail funds.
BlackRock’s shares fell 1.4 percent to $179.55 at 1:48 p.m. in New York. The shares were up 2.1 percent this year through last week.