September 6, 2014

The Biggest Exchange-Traded Fund and Mutual Fund Families

There are many products and industries where it's intuitive which products are the biggest brands. Coke and Pepsi, Nike and Adidas, Apple and Samsung, and so on. But which companies are the top of the heap when it comes to ETF and mutual fund assets? Although significantly more money is invested in mutual funds than exchange-traded funds, ETFs still have nearly $1.7 trillion in assets under management as of the end of 2013.

Despite this massive amount of money, there's been a lot of change among investment management companies over the past year. After lagging significantly behind SSgA (State Street Global Advisors, the management company responsible for bringing you SPDR ETFs) over the past few years, Vanguard is now poised to take the #2 spot in the very near future. Perhaps this is in small part to Warren Buffett's recent endorsement of the company's funds. But I suspect a strong combination of products in most market segments, extremely competitive costs, and continued growth in awareness about the merits of passive index investing (and questions surrounding the value of active management) have lead to the solid inflows. While solid market performance since the great recession have naturally driven an increase in assets under management, some ETF companies have seen stagnant growth during this time.

Top 20 ETF Sponsors by Asset Percentages: BlackRock, SSgA, Vanguard, PowerShares, and WisdomTreeIf we look at the data from ETF.com, the top 10 ETF sponsors (with Charles Schwab being the smallest of that group), make up about 96% of the total assets of the top 20. The next ten are individually pretty insignificant individually, adding up to less than 4% to total assets. This is an industry dominated by a handful of giants. There are a few smaller players with pretty solid niches (most notably PowerShares and WidsomTree, both with low growth during the past year), but between BlackRock's iShares family, State Street's SPDRs, and Vanguard ETFs, the three leaders combine for over 81% of the industry. First Trust, Guggenheim, and Schwab all experienced rapid growth over the previous year (42%, 24%, and 31% respectively), but starting from such a small base means they might be able to compete for the #5 spot in the near future, but it will be a while before they threaten PowerShares. In the top 3, BlackRock grew 8.5%, Vanguard 17.1%, but State Street was relatively flat at 1.1%.

What about the largest mutual fund sponsors?

Top 10 Mutual Fund Sponsors: Percentage by total of group for Vanguard, Fidelity, American Funds, and more
We see a similar pattern here. Looking at the top 10 players according to Morningstar, The top three are massive, with Vanguard this time taking the #1 spot with over $2.1 trillion (by far, about 75% bigger than Fidelity, the #2, with nearly $1.2 trillion). Interestingly, you'll see the top 10 mutual fund families are quite a different set of players in comparison to their exchange-traded cousins. Vanguard is the only firm with a dominant position in both categories. You'll notice PIMCO on both lists, along with BlackRock. However, in the mutual fund space, BlackRock is less than a tenth the size of Vanguard. Quite a difference from its top ranking in the ETF industry. Looking at the dominance of Vanguard's position among mutual fund sponsors, it leads me to believe cross-promotion might be aiding the rapid growth of their ETFs. Investors can often choose between mutual fund or exchange-traded fund varieties (typically at the same expense ratios if you meet a minimum investment threshold). Some of the more traditional mutual fund companies that often work through advisors, including American Funds, are dipping their toes into exchange-traded waters to deal more directly with investors, but it's tough to say how successful they'll be with the huge leads competitors have already made in that space.

You'll also notice Dimensional Fund Advisors on this list with $243 billion in assets under management. DFA is famous for their value funds which offer close alignment with Fama-French Factors that are difficult to obtain through other fund families.

Does fund sponsor size really matter?

Ultimately, it's not ideal to have a fund shut down on you. But many of the smaller players across both product types offer funds with healthy AUM and interesting investing strategies you may not be able to get anywhere else. I'm intrigued with equal-weighting, for example, and although Guggenheim isn't among the biggest players in ETFs, many of their equal weight products are plenty big enough with healthy trading volume. The Guggenheim S&P 500 Equal Weight ETF has nearly $9 billion in AUM and trades about 800k shares daily. To me it really makes the most sense to evaluate your investment options at the individual fund level. Some of the smaller guys have 2-3 big funds instead of dozens, but are certainly worth a look. It's more interesting than anything else to have a feel for the industry landscape.

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