July 18, 2012 6:16 pm

BlackRock plans to counter ETF competition

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BlackRock plans to step up its response to the aggressive price competition of Vanguard in the US exchange traded funds market.

Speaking at the second quarter results presentation on Wednesday, Larry Fink, chief executive of the world’s largest fund manager, acknowledged that Vanguard had won market share in some “core” US listed equity ETFs due to its aggressive price competition.

Mr Fink said pricing was a “more dominant” issue for investors when there was head-to-head competition between core strategy ETFs that offered comparable liquidity and tracking errors.

This, said Mr Fink, was “a big issue”, adding that BlackRock had a plan to address growing competition in the ETF market.

Mr Fink also paid generous tribute to Vanguard, describing it as a “trustworthy brand” that deserved credit.

He said BlackRock was holding on to its leading position in fixed income ETFs and other ETF markets worldwide, but added that he was “not pleased” with the company’s current efforts to compete in “core commoditised” [equity] ETFs in the US.

Vanguard is currently on course to win the race among ETF providers for US investors’ cash for a third year in succession in 2012.

Vanguard’s ETF operations have gathered $29.6bn in net new inflows in the first six months of this year while BlackRock’s US iShares business has attracted $16.2bn.

BlackRock has so far shied away from entering into a price war with Vanguard, which has consistently been reducing charges as its ETFs grow in size.

In the past, Mr Fink has denied BlackRock was feeling the effects of price competition among US ETF providers. His latest comments suggest the group now feels it has to respond to that competition or continue to lose business in the core US equity ETF space.

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