Tuesday, December 14, 2010

Vanguard in ETF Ascendancy at BlackRock's Expense

The Vanguard Group is taking ETF market share from BlackRock, Inc. at a significant pace.  Vanguard is doing so primarily through investor sensitivity to cost - that is, the lower expense ratios of Vanguard ETFs compared to category-equivalent iShares ETFs from BlackRock.  According to a Pensions & Investments article, the competitive cost pressures that Vanguard and others are bringing to bear could cost BlackRock approximately $400 million in annual revenue.  Unfortunately for BlackRock there's minimal expense savings to offset that evaporating revenue.

BlackRock identified the risk of "the impact of increased competition" in its public disclosures.  However, one wonders what weight BlackRock gave to the possibility of hyper-intense cost competition with Vanguard and others when BlackRock agreed last year to buy the iShares funds business from Barclays for $15 billion in cash and stock

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