The Vanguard Group Inc., the third-biggest provider of exchange-traded funds, has gained ground on larger competitors so far this year after gathering more than seven times as much money into its ETFs than the rest of the U.S. industry combined.
Vanguard attracted $13.1 billion, or almost 90% of the money gathered by all U.S. ETFs in the quarter ended March 31, according to data compiled by Bloomberg. Clients pulled a net $18.3 billion from ETFs run by State Street Corp., including $19 billion from the SPDR S&P 500 ETF Trust, known as the Spider.
Vanguard, started almost four decades ago by John C. Bogle, has been able to attract steady deposits from savers by offering low-cost funds, a strategy that helped it become the largest mutual-fund provider. A latecomer to ETFs in part because Mr. Bogle was opposed to them, the firm has been narrowing the gap with industry leaders such as BlackRock Inc. and State Street, whose products are popular among institutional investors such as hedge funds that seek ways to trade in and out of markets quickly.
“We think Vanguard's market share is going to grow and in the very near future can take over the No. 2 spot from State Street because they have a broad array of successful products,” said Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ.
Retail investors are drawn to Vanguard funds for their lower fees, while institutional users gravitate to more actively traded products for their liquidity, which reduces trading costs, said Ben Johnson, director of passive funds research at Morningstar Inc.