Global passive investing giant Vanguard claimed victory in the exchange-traded fund (ETF) wars during the turbulent first half of 2020 with US flows more than double that of top dog BlackRock.
According to Bloomberg, Vanguard booked ETF inflows of almost US$90 billion over the six months ending June 30 compared to just US$38 billion for the market-leading BlackRock iShares range. Over the same period last year, iShares outpaced Vanguard ETF flows by almost US$2 billion.
Bloomberg says active traders – who allegedly favour iShares products – appeared to sell down more during the volatile COVID-19 period.
Alex Bryan, Morningstar director of passive strategies North America, told the news service that: “Vanguard is more focused on these types of products which are designed to cater to long-term, buy-and-hold investors [who]… likely aren’t looking to make tactical adjustments based on what’s going on in the market.”
The onset of commission-free trading last year could also have handed Vanguard a “distribution bump”, Bloomberg says.
Despite the 2020 first half advantage falling to Vanguard, iShares remains well ahead in US ETF market share with just over 38 per cent of the US$4 trillion business.
Vanguard has rapidly risen to second in the ETF rankings (pushing aside pioneer firm State Street on the way) to claim about 27 per cent of the growing US market.
However, Bloomberg says Vanguard could emerge as ETF king within 10 years or “faster in an extended downturn”.
“The index-investing pioneer, known for its low costs, tends to win whenever it gets on an even playing field…,” the report says.
BlackRock has responded in kind, though, reducing fees on its core US equities ETF to just 0.03 per cent from 0.04 per cent as the fierce index price battle approaches the zero bound.
In July to date, iShares clawed back some ground from Vanguard, attracting net US ETF inflows of US$2.2 billion compared to US$1.7 billion for the latter.
Rich Powers, Vanguard head of ETF product, told Bloomberg the group’s success during the first half of 2020 was “a testament to our investors’ resolve”.
Powers said Vanguard has seen rising demand for ETFs from “all types of investors, but particularly by financial advisers that prefer a low-cost, broadly diversified portfolio with intraday liquidity and tight spreads”.
At the same time, however, Vanguard’s traditional unlisted managed fund business went backwards during the early months of 2020 with net outflows of US$20 billion for the year to the end of May, Bloomberg says.
John Bogle, the Vanguard founder who died last year, was a famous ETF sceptic, once describing investors in the listed fund products as “fruitcakes, nut cases, and the lunatic fringe”.
But the lunatic fringe now appears to be moving front-and-centre for Vanguard.
“The firm’s ETF lineup may be poised to see another bump in the near future,” Bloomberg reports. “Vanguard plans to convert some mutual fund holdings to lower-cost ETF shares for clients of its advisory business, spokesman Freddy Martino confirmed.”