iShares fights for fund flows

BlackRock's iShares has had a firm hold on the top position in Europe's exchange traded fund market for years, boasting ETF assets three to four times larger than its nearest rivals. But new figures show the fund house struggling to gain ground in the rapidly growing European market, in stark contrast to its competitors.

Last year, although a record-breaking $60.5bn flowed into European-domiciled ETFs, iShares portion of that total declined to about a third at $20.3bn.

In 2013, its net inflows were also $20.3bn but this amounted to about 80 per cent of the total of $25.7bn which flowed into European ETFs. As a result, iShares has lost market share. By the end of 2014, it managed 48.4 per cent of Europe's ETF assets, down from 50.8 per cent in 2013, says ETFGI, a research company.

Although the drop of 2.4 percentage points might seem small, especially as iShares easily retains its position as Europe's leading ETF provider, the decline is indicative of the challenge iShares faces - and the opportunities available to other fund providers.

"Competition among European ETF providers is intensifying," says Hortense Bioy, director of passive fund research at Morningstar. "[iShares is] losing market share and if it weren't for its acquisition of Credit Suisse's ETF business [in 2013] it would have lower market share today.

"Groups such as Vanguard, UBS, Source and Amundi have all gained market share at iShares' expense."

Detlef Glow, head of research for Emea at Lipper, says BlackRock's grip is being challenged by a combination of new entrants, product innovation, fee price wars fees, and changes to replication styles.

BlackRock is also facing a "concentration issue" - investors feel they already hold a huge chunk of its products, says Nizam Hamid, an ETF and hedge fund consultant.

Deborah Fuhr, managing partner of ETFGI, agrees: "Many investors need to diversify the product providers they work with."

And Mr Glow adds that there is now an opportunity for other providers to take market share.

iShares, meanwhile, appears unconcerned about the increasing competition. Rachel Lord, head of iShares Emea, says: "iShares' primary aspiration is to be the leader in flows and we've cemented that top spot in Europe over the past few years."

The company says it "welcomes" competition, but the question is how big its decline in market share will be. "There are seven or eight pretty strong players at the moment all competing for assets," says Michael John Lytle, chief development officer at ETF provider Source.

Ms Bioy says iShares is likely to remain a dominant player in Europe just as it is in the US, where it controls the bulk of assets with Vanguard and State Street. However, she adds: "As the ETF market grows, I think iShares will continue to lose market share."

Even if iShares retains dominance, when it comes to the European ETF space, Mr Glow says: "Competition will get even more intense."

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