'The ETF is winning out long term': BlackRock tops market share for ETFs, but 2023 flows point to Vanguard catching up (2024)

By Christine Idzelis

ETFs are becoming the 'default investment vehicle for investors,' says BlackRock's Salim Ramji

Hello! Here's how the competition for ETF assets shook out in 2023. Will BlackRock keep its top spot in 2024?

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BlackRock finished 2023 with the biggest market share in the exchange-traded fund industry, keeping Vanguard at bay in the No. 2 spot even after the close competitor topped U.S. flows.

"We ended the year very strong," capturing more ETF inflows than any other firm globally, said Salim Ramji, BlackRock's global head of ETF and index investments, in a phone interview.

BlackRock continues to rank No. 1 in assets in the global ETF industry after tallying flows for 2023, according to Morningstar data. Including its iShares brand, BlackRock had more than $190 billion of inflows globally last year, compared with around $184 billion for Vanguard, Morningstar estimated.

Vanguard oversees the second largest share of ETF assets globally, followed by State Street, according to the Morningstar data through 2023. BlackRock also kept its top market share in the U.S., which houses the most ETF assets by far.

"Vanguard has been moving closer to BlackRock," said Aniket Ullal, head of ETF data and analytics at CFRA Research, in a phone interview. "They haven't caught up yet."

For U.S.-listed ETFs, BlackRock's iShares business had about $2.6 trillion of net assets at the end of last year, exceeding Vanguard's $2.35 trillion, according to CFRA. But Vanguard saw larger inflows last year at about $158 billion, compared with around $107 billion for BlackRock, based on rankings by CFRA.

Vanguard vies for top

"It seems likely" that Vanguard may overtake BlackRock in the U.S. ETF industry for the most assets, based on flow data over the past few years, said Ullal. In his view, that could happen as soon as this year or in 2025.

BlackRock had a market share of around 32% in the U.S. at the end of last year, compared with almost 29% for Vanguard, according to Morningstar's estimates. Morningstar data also showed that Vanguard had the biggest inflows in the U.S.-listed ETF market last year.

"They're losing money from their mutual funds and it's going into their ETFs," said Dan Sotiroff, a senior analyst for manager research at Morningstar, by phone. "The ETF is winning out long term."

As part of that broad trend, asset managers have been converting mutual funds into ETFs, according to Sotiroff.

Last year BlackRock launched ETFs that target the fixed-income market with actively managed strategies similarly used by its mutual funds, giving investors a choice.

The active BlackRock Total Return ETF BRTR began trading in December, while the BlackRock Flexible Income ETF BINC was listed in May.

See: BlackRock's Rick Rieder rolls out his second ETF as active exchange-traded funds surge

Within fixed income, BlackRock's iShares business took in $113 billion of ETF flows in 2023 globally for a 34% market share, according to a spokesperson for BlackRock.

"It's a huge part of the flows, certainly for us," said Ramji, who expects that iShares fixed-income ETFs will triple assets to $2.5 trillion by 2030. That would surpass the industry's current $2.2 trillion of bond ETF assets, according to Ramji.

Vanguard also recently launched active ETFs targeting fixed income, listing both the Vanguard Core-Plus Bond ETF VPLS and Vanguard Core Bond ETF VCRB in December.

"It seems like they are making a bigger push into active" ETFs, although the industry's overall assets under management remain dominated by passive, index-tracking funds, said Ullal.

'Default investment vehicle'

Meanwhile BlackRock has seen the number of individual investors using its iShares ETFs swell over the past five years to 43 million, Ramji said. "We want to double it."

Currently wealth advisers represent the largest part of BlackRock's investor base for ETFs, followed by individual investors and then institutions such as insurance companies and other asset managers, according to Ramji.

The ETF industry's total assets stand at almost $11 trillion globally, including around $8 trillion in the U.S., Citi Research estimated in a note earlier this week.

ETFs are becoming the "default investment vehicle for investors," said Ramji. "There's a very broad investor base all across the world."

BlackRock's top five ETFs in terms of assets gathered globally last year were the iShares Core S&P 500 ETF IVV, iShares 20+ Year Treasury Bond ETF TLT, iShares Core U.S. Aggregate Bond ETF AGG, iShares 0-3 Month Treasury Bond ETF SGOV and iShares MSCI USA Quality Factor ETF QUAL, according to the giant asset manager's spokesperson.

As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good...

 Top Performers %Performance United States Natural Gas Fund LP 9.9 AdvisorShares Pure US Cannabis ETF 3.0 Utilities Select Sector SPDR Fund 2.4 Vanguard Utilities ETF 2.2 KraneShares CSI China Internet ETF 2.2 Source: FactSet data through Wednesday, Jan. 3. Start date Dec. 27. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater

...and the bad

 ETFMG Prime Junior Silver Miners ETF %Performance Amplify Transformational Data Sharing ETF -11.1 ARK Innovation ETF -10.6 ARK Fintech Innovation ETF -10.4 ARK Next Generation Internet ETF -10.0 ETFMG Prime Junior Silver Miners ETF -9.0 Source: FactSet data

New ETFs

Cambria Investment Management announced Thursday that it launched two actively managed exchange-traded funds, the Cambria Micro and Small Cap Shareholder Yield ETF MYLD and Cambria Tactical Yield ETF TYLD. The small-cap fund focuses on "high-cash distribution companies," while the other new fund targets fixed-income securities based on "yield spreads," said Cambria.PGIM said Jan. 2 that it launched two series of buffer exchange-traded funds that will include PGIM U.S. Large-Cap Buffer 12 ETFs and PGIM U.S. Large-Cap Buffer 20 ETFs. "The series will consist of a total of 24 ETFs, with 12% and 20% buffer ETFs launching on a rolling basis the first business day of each month throughout the year," the firm said.

Weekly ETF reads

Cathie Wood's ARK Innovation ETF stages massive quarterly rally as it climbs in 2023 after big losses (MarketWatch)Bitcoin pulls back before SEC's ETF decision. Here's why. (MarketWatch)Jane Street Emerges as Broker of Choice for Bitcoin-ETF Issuers (Bloomberg)Goldman Sachs Eyeing Bitcoin ETF Role Via BlackRock and Grayscale: Sources (CoinDesk)JPMorgan, Goldman in Talks With Grayscale About Bitcoin ETF Role (Bloomberg)

-Christine Idzelis

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01-06-24 0549ET