ETF IQ: BlackRock, Vanguard duopoly

A look at the ETF leaderboard

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Welcome to ETF IQ, a weekly newsletter dedicated to the $14 trillion global ETF industry. I'm Bloomberg News reporter and anchor Katie Greifeld.

Open for Business

Invesco Ltd.'s ETF lineup enjoyed a record influx of cash in 2024, vaulting the firm into third place for overall flows — the first time since 2013 that Invesco has cracked the top three. However, the gap between the top two spots and everyone else looks increasingly insurmountable. Nearly $86 billion flooded into Invesco's ETFs last year, with investors chasing big tech and equal-weight strategies alike. While that's huge for Invesco, it's only good enough to be a distant third behind the likes of Vanguard Group and BlackRock Inc. — which attracted $305 billion and $283 billion, respectively. The two giants have controlled the top two places for inflows since 2008, while their combined assets comprise nearly 61% of the more than $10 trillion held in US-listed ETFs, Bloomberg Intelligence data show.  Does the top of the leaderboard ever change? It seems impossible to believe that organic growth alone will be able to unseat either BlackRock or Vanguard, especially given that a rising market means their assets will inflate as well. But dealmaking could change the conversation. Consider the Invesco S&P 500 Equal Weight ETF (ticker RSP), which posted an all-time record haul of $17 billion last year. RSP came into Invesco's hands in 2018, when the company paid $1.2 billion to purchase Guggenheim Investments' ETF division. For context, RSP had about $15 billion in assets when the deal closed — it's since ballooned to more than $70 billion.  While there is plenty of optimism to be found about the dealmaking environment under the incoming Trump administration, it remains to be seen whether that energy will extend to the ETF universe — and if so, what the implications are for the industry's league table.

The Grown-Ups Are Talking

Much has been made about the ETF universe's $1 trillion flow show in 2024. But "everyone is falling asleep" when it comes to how much of that went into fixed income, according to Citigroup Inc.'s Drew Pettit.  Bond funds absorbed almost $289 billion in 2024 — another record showing. That's impressive enough, but even more so when one considers how unimpressive fixed-income returns were last year — AGG eked out a 1.4% total return, while TLT holders were hammered with a 7.8% skid lower. Against that uninspiring backdrop, what explains the bid into bond funds? It was likely more mechanical rather than fundamental, in the eyes of Citi's Pettit. This newsletter has discussed the boom in model portfolios before, which package together funds into ready-made strategies to sell to advisers. In a raging equity bull market, those models likely have to rebalance to bring stock weightings back in line, while also adding to fixed-income positions to bring that portion of the portfolio back up to benchmark weights, Pettit said.  "It comes down to, ETFs are more professional than people think. Everyone thinks ETFs are retail, hot trades, but as ETF trades have become more institutionally driven," he said. "When you have big equity moves in a model, the model rebalances."

In Other News

Saudi Arabia's sovereign wealth fund invested $200 million in the first European-listed ETF to track the kingdom's debt. Chinese investors' fierce appetite for overseas shares has triggered rare, full-day suspensions on a pair of ETFs tracking global equities. Drill Down In this week's Drill Down on Bloomberg Television's ETF IQ, Joel Shulman of EntrepreneurShares joined to talk about the ERShares Private-Public Crossover ETF (XOVR). The fund holds about 30 stocks, but its top holding is the most interesting one: a 9% allocation to privately held, Elon Musk-founded rocket company SpaceX, which XOVR owns via a special purpose vehicle. The Securities and Exchange Commission has a 15% cap on open-ended funds holding illiquid investments; XOVR falls comfortably below the limit. XOVR bought SpaceX shares on December 2nd, according to Shulman. While the ETF's public stocks will be rebalanced quarterly, it will add to and adjust its private holdings "opportunistically," Shulman said. That was the case with SpaceX — XOVR initially bought shares on December 2nd and then added a few days later when SpaceX conducted a tender offer, he said.  "SpaceX is a long-term hold for us. We're not going to change that at all, in fact we may add to it," Shulman said. "Right now, if somebody wants this position, it's the easiest way they can get into it." XOVR charges 75 basis points and has about $220 million in assets. Next Week on ETF IQ BlackRock's Kristy Akullian and VanEck CEO Jan Van Eck join Bloomberg Television's ETF IQ on Monday at noon ET. Watch on Bloomberg Television, on the Bloomberg Terminal at TV <GO> and on YouTube.

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