BlackRock, Vanguard, Fidelity Keep Gobbling Up Market Share

The US fund industry is increasingly looking like the juice aisle — that is, concentrated. 

BlackRock, Vanguard and Fidelity represent 52% of the mutual-fund and ETF assets under management of the largest 150 firms, according to a Morningstar report. That’s a marked increase over the past decade: In 2014, those three firms plus Capital Group accounted for only 43% of AUM. This concentration allows firms to pass on economies of scale to their investors through lower fees, but also pressures smaller shops with fewer resources to invest in technology and talent, said Alyssa Stankiewicz, principal of parent research at Morningstar. 

Concentration in the US fund business “has been increasing over the past as many years as we want to go back,” said Stankiewicz, who is one of the authors of the report. But that doesn’t mean game over for the smaller companies. “Smaller and mid-size shops have many options, including (but not limited to) differentiating themselves in terms of client service and relationships that may look and feel different than at large firms, distinguishing themselves by specializing in a given style or asset class, and through factors such as employee ownership that may attract different types of investment talent,” she said.

Squeezing the Competition

Scale is a huge advantage, Stankiewicz said. “A significant portion of assets [are] managed by just the largest 10 asset managers, and then when you split that out into active and passive, the passive side of things is even more concentrated.”  

Per the report: 

• On the passive side, five firms manage 89% of US mutual-fund and ETF assets. Vanguard accounts for 44%, BlackRock follows with 21%, and Fidelity and State Street tie for third with 10% each. 
• Active funds are less concentrated. The top five firms manage 47% of assets. Capital Group manages 18%, Fidelity follows with 12% and Vanguard with 8%. 

The Juice Doesn’t Sell Itself: Smaller issuers have had to get creative in how they win assets, in both product design and promotion. Matt Kaufman, head of ETFs at Calamos Investments, says the firm sees income, protection, growth and diversification, particularly away from bonds, as areas where advisors will look beyond the big names. Jake Hanley, chief growth officer at Teucrium, emphasized the importance of publishing research for getting noticed and capturing flows. “Before a product has a chance to compete for assets it first competes for attention,” he said.