Strong demand for passives has propelled BlackRock to the top of the retail sales tables, according to the Pridham Report for the first quarter of 2017, as the fund management giant has gathered more than double the net sales of the second most successful firm in the list.
The quarterly Pridham Report shows which fund management groups have attracted the most money into their UK-domiciled funds from retail investors during the period.
The latest report has revealed that retail investors have flocked to passive products in hordes, with some £1.6bn (€1.9bn) flowing into BlackRock’s retail products during the quarter. This was more than double the inflows attracted by the second most successful provider, Schroders, which took in £656m (€777m).
Much of this strong demand was driven by BlackRock’s leading position as a passive fund provider through its iShares business, according to the report.
Earlier this year, the world’s largest asset manager announced plans to shift a number of its actively-managed equity products into quantitative strategies, affecting some $30bn of its assets under management. The group’s CEO Larry Fink said at the time the move prepared the firm for what he believes will be “the future of active equity management”.
The latest sales figures confirm a shift is taking place in the market, with demand for passive investments fuelled by investors’ search for lower-cost investment options and the flexibility to get in and out of markets quickly to respond to geo-politicals events and uncertainties.
Meanwhile, a number of fund groups active in the UK are trying to capitalise on the growing demand for exchange-traded funds (ETFs), as private investors and financial adviser begin to get to grips with using these products in their portfolios.
For example, Fidelity recently made its first foray into the ETF space, launching two smart-beta ETFs last month, the Fidelity US Quality Income ETF and the Global Quality Income ETF.
The asset manager already offers 14 index funds, but has been preparing to venture into the ETF space for some time, having hired Nick King from BlackRock in 2015 to help it build out its offering. Over the next 18 months, the firm plans to come to market with new launches in the smart-beta space.
Meanwhile, J. P. Morgan Asset Management recently poached Invesco PowerShares’ Bryon Lake for the newly created role of head of international ETFs, based in London, in a bid to expand on its existing US passives offering. The US-based suite already features 11 ETFs with total assets of $1.4bn (as at the end of February 2017), and the firm plans to expand this into other geographical regions.
The competition in the ETF space has already led to a price war on some of the plain vanilla products, such as S&P 500 ETFs, which can now be bought for a management fee as low as 0.07% (iShares Core S&P 500 UCITS ETF, for example, which has a five-star rating from TrackInsight).
The next stage of the battle could see smart-beta offerings undergo the same price cuts, as these types of products become more mainstream.