The trend toward more passive investment was reflected in the increase in assets under management in exchange-traded products in 2017, Pensions & Investments' annual money manager survey findings show.
Managers in P&I's survey reported worldwide assets in sponsored exchange-traded funds and notes totaling $4.13 trillion as of Dec. 31, up 36.3% from the end of 2016. That's on top of a 23% gain in assets in 2016.
And as is the case with worldwide asset growth, the same money managers — BlackRock Inc., Vanguard Group Inc. and State Street Global Advisors — continued to manage the lion's share of the overall assets. The three managed 79% of all ETP assets reported in P&I's universe as of Dec. 31, the same as at the end of 2016.
That concentration exists, sources said, because those managers are leveraging their scale and their relationships with existing clients to meet the desire of investors, institutional and otherwise, to reduce costs through the use of passive investment vehicles. The vast majority of ETPs are passive.
The three largest managers "have increased scale," said Alex Bryan, director of passive strategies research, Morningstar Inc., Chicago. "Once that happens, they can improve their capital markets team, their trading desks, improve the cost, and generally make it tougher for others to compete. (Also) a lot of this is inertia. They're increasing their wallet share. An investor might like one fund, and they'll look at that manager's other funds. Ultimately (investors) think of the whole service package. As with brokerage clients, once institutions get a relationship, they're inclined to stick with them because of their service, their liquidity and their all-in costs."