Net ETF inflows at BlackRock could exceed $200 billion in 2017 if current trends continue, said equity analyst Robert Lee, a managing director at Keefe, Bruyette & Woods Inc. in New York.
"When they considered acquiring BGI, they had the foresight to say 'this is a once-in-a-lifetime opportunity to buy a franchise like this' and they grabbed it," he said.
At. AQR, company officials said no formal decision has been made to offer ETFs even though the firm filed for exemptive relief.
"What we do is still to be determined," said David Kabiller, co-founder and head of business development. "We will only move ahead if we think our clients are better served."
"There are some structural benefits to ETFs due to tax efficiency," he said. "AQR wants to be structure-agnostic. The key thing is for us to build the best investment processes that we can and have the best structure available that allows the client to achieve the best net results. If there is less frictional cost, be it taxes or fees, that allow our client to get the better result, we need to have that as an option in our arsenal."
Other money managers have been more definite in their plans. American Century Investments, Kansas City, Mo., plans to offer smart-beta ETFs in early 2018 and could also add active ETFs, said CEO Jonathan Thomas. To lead the effort, American Century in June hired Edward Rosenberg, a former top executive at FlexShares, the ETF business of Northern Trust Asset Management.
For active managers, so-called smart-beta ETFs, which use rules-based investment factors to enhance passive returns, have been a key entry point into the ETF game. Money managers such as Hartford Funds, Columbia Threadneedle Investments and OppenheimerFunds all acquired small ETF firms to jump-start their way into the ETF business and smart beta over the last few years.
Other firms have used a hybrid approach. Legg Mason Inc., for example, recruited two top ETF executives from Vanguard in 2015 for its new ETF effort. But in 2014 it also purchased money management firm QS Investors LLC, known for its factor-based quantitative investment process.
QS became the first of Legg Mason's investment affiliates to launch ETF strategies in 2015. It since has been followed by other Legg Mason affiliates, though none of the firms have yet to gather significant assets under management.
Legg Mason has more than $740 billion in assets under management but its ETF franchise made up just $553.3 million as of Sept. 12, even with net inflows of $397.3 million during that period, Morningstar data show.
Hartford Funds added $159.8 million in inflows for the year so far through Sept 12, but its ETF assets totaled just $259.1 million, according to Morningstar.
Other firms, such as money manager Franklin Resources Inc., have been building a smart beta and active ETF platform from scratch. Franklin started offering one ETF in 2013 but last year expanded that to a suite of ETFs under the direction of Patrick O’Connor, a former top BlackRock ETF official who joined Franklin in 2015.
At $788.9 million, Franklin's ETF assets are still just a fraction of the company's $742 billion in total AUM.
New ETF businesses still need to figure a way to gather significant assets to make long-term profits, said Craig Siegenthaler, an equity analyst and managing director at Credit Suisse in New York.
Mr Siegenthaler said ETFs launched by money managers that were late to the market don't have much in assets and will need to develop at least a three-year track record to attract substantial ETF inflows.
"The verdict is still out," he said as to whether the firms can develop a successful ETF business.
The Morningstar Direct data show much of the ETF inflows in 2017 can be attributable to just BlackRock and Vanguard. BlackRock had $140.9 billion in U.S. ETF inflows in 2017 through Sept. 12, compared to $105 billion in 2016, while Vanguard's $94.5 billion in net inflows as of Sept. 12 already exceeds its $94.3 billion for all of 2016.