By Christine Idzelis
Vanguard is 'not in need of radical changes,' says ETF expert Todd Rosenbluth, who is head of research at VettaFi
Hello! Vanguard has hired a new CEO, former BlackRock executive Salim Ramji. In this week's ETF Wrap, you'll see how Vanguard stacks up against BlackRock in its close competition for assets in the U.S. ETF world.
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Vanguard Group is moving closer to BlackRock's top ranking in total assets for U.S. exchange-traded funds, as its new chief executive, Salim Ramji, prepares to take the helm after leaving the world's largest money manager.
While Vanguard ranks No. 1 for ETF flows so far in 2024, the firm is still behind BlackRock in assets under management, said Aniket Ullal, head of ETF data and analytics at CFRA Research, in an email to MarketWatch.
Vanguard's $2.6 trillion of total net assets in U.S.-listed ETFs as of May 14 placed it second to BlackRock's $2.8 trillion, according to data from CFRA. State Street followed at a distant No. 3, but the firm remains a U.S. ETF industry heavyweight with $1.3 trillion of assets.
Top 5 ETF firms based on total assets
ETF issuer Net assets Net flows YTD BlackRock 2,803,570,777,503 59,406,721,382 Vanguard 2,595,746,202,941 94,948,388,284 State Street 1,300,748,831,798 -14,932,122,125 Invesco 521,800,300,176 31,067,997,815 Charles Schwab 344,417,713,008 6,586,331,820 Source: CFRA Research data as of May 14, 2024 for U.S.-listed ETFs
Ramji told MarketWatch in early January - when he was still in his former role as BlackRock's global head of ETF and index investments - that exchange-traded funds were becoming the "default investment vehicle for investors." The ETF industry in the U.S. has swelled to almost $9 trillion in total assets under management, according to CFRA data.
"The next wave of product development from Vanguard is likely to be active ETFs" that tap into the asset manager's "strong in-house capabilities" on the mutual-fund side of its business, said Todd Rosenbluth, head of research at VettaFi, in a phone interview. "Ramji is well-suited to facilitate that" given his experience at BlackRock, said Rosenbluth.
BlackRock is the world's biggest asset manager, with $10.5 trillion in total assets under management at the end of March. While the firm's thematic and single-country ETFs, along with its bitcoin exchange-traded fund, draw distinctions compared with Vanguard's offerings, the two giant managers also have a lot in common, according to Rosenbluth.
"A commonality we're likely to see more of from Vanguard is the embracing of actively managed products" in the ETF industry, he said. "They've got a very strong active fixed-income franchise."
Late last year, Vanguard launched two actively managed fixed-income ETFs, the Vanguard Core-Plus Bond ETF VPLS and the Vanguard Core Bond ETF VCRB, which run strategies similar to its existing mutual funds, John Croke, the firm's head of active fixed-income product management, told MarketWatch in December. The asset manager listed its first active fixed-income ETF, the Vanguard Ultra-Short Bond ETF VUSB, in 2021, he said at the time.
"Vanguard is increasingly focused on fixed income," said Rosenbluth.
Should Vanguard roll out more actively managed fixed-income ETFs, he thinks the funds could focus on municipal bonds or high-yield debt. The firm currently does not provide such active ETFs, he said, although it has actively managed mutual funds targeting both those areas of the fixed-income market.
Meanwhile, BlackRock also launched active fixed-income ETFs last year, including the BlackRock Flexible Income ETF BINC, which already manages $3 billion of assets and is beating the broad U.S. bond market this year with a 1.5% total return through Wednesday.
The bond market has struggled with worries over sticky inflation in 2024, but it rallied on Wednesday after a reading from the consumer-price index showed signs of easing in April.
For example, shares of the Vanguard Total Bond Market ETF BND, which tracks a broad index of U.S. investment-grade securities in fixed income, finished 0.6% higher on Wednesday to reduce its loss this year to 0.8% on a total return basis.
The bond fund is cheap and large, with $106 billion of assets under management and an expense ratio of just 0.03%, according to FactSet data. The fund is slightly smaller than BlackRock's iShares Core U.S. Aggregate Bond ETF AGG, which also passively tracks the U.S. investment-grade bond market and at the same cost. The fund has $108 billion of assets.
Read: Bond-market rally may not be over after inflation report brings 'massive relief'
Competition in active bond ETFs
The actively managed BlackRock Flexible Income ETF - launched in May 2023 and led by the firm's chief investment officer of global fixed income Rick Rieder - has seen "a great start," said Rosenbluth.
BlackRock has added the fund to a "model portfolio" that investors and financial advisers may consider as they seek to allocate across asset classes, Rosenbluth said. It's an example of "a firm bringing its best managers into the ETF marketplace."
The active bond ETFs launched late last year by Vanguard are much smaller than the BlackRock Flexible Income ETF, which invests globally across fixed income and provides exposure to debt that's above and below investment grade.
The Vanguard Core Bond ETF has around $210 million of assets and the Vanguard Core-Plus Bond ETF has about $134 million, according to FactSet data.
The Vanguard Core-Plus Bond ETF primarily invests in the U.S. investment-grade market but may also selectively provide exposure to below-investment-grade bonds and foreign debt, according to a description of its investment approach on the firm's website.
The actively managed ETF was down 0.1% this year on a total return basis through Wednesday, underperforming the BlackRock Flexible Income ETF but faring better than the Vanguard Total Bond Market ETF so far in 2024, according to FactSet data.
The Vanguard Core-Plus Bond ETF costs more than the firm's big passive bond fund, with a 0.2% expense ratio, but it's less expensive than the BlackRock Flexible Income ETF's net expense ratio of 0.4%.
BlackRock vs. Vanguard ETF flows
While BlackRock manages the most ETF assets in the U.S. - which is by far the largest market for exchange-traded funds globally - the firm ranks second in U.S.-listed ETF inflows so far this year, according to data tracked by CFRA. BlackRock's U.S. ETFs have raked in around $59 billion in 2024 through May 14, lagging the $95 billion for Vanguard over the same period, according to the data from CFRA.
"Given its current pace" of inflows, Rosenbluth said that "Vanguard is likely at some point to surpass BlackRock" in terms of total ETF assets under management in the U.S. "What's working for Vanguard is offering low-cost, asset-allocation products," with the firm establishing "a very strong heritage with investors," he said.
With the hiring of former BlackRock executive Ramji, it's possible that Vanguard's new CEO may showcase the firm's expertise in ETFs to a broader audience, including institutional investors as well as financial advisers and individual investors, according to Rosenbluth.
But "they're not in need of radical changes," he said.
Ramji will officially begin his new role as chief executive of Vanguard on July 8, according to the firm's announcement on his hiring earlier this week. He will replace Tim Buckley, who is retiring and stepping down as chairman and CEO.
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 abrdn Physical Platinum Shares ETF 8.2 ARK Genomic Revolution ETF 7.1 VanEck Semiconductor ETF 6.3 VanEck Bitcoin Trust 5.9 iShares Bitcoin Trust 5.9 Source: FactSet data through Wednesday, May 15. Start date May 9. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
...and the bad
Bottom performers %Performance Global X Lithium & Battery Tech ETF -3.3 Invesco DB Agriculture Fund -2.2 Sprott Uranium Miners ETF -1.6 iShares U.S. Oil & Gas Exploration Production ETF -1.6 iShares MSCI Saudi Arabia ETF -1.2 Source: FactSet data
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