Vanguard Just Passed iShares: How the ETF Giant Won by Keeping It Simple

Perhaps lost in all the commotion surrounding the SpaceX (NASDAQ: SPCX) initial public offering (IPO) on Friday was a fascinating nugget from the world of exchange traded funds (ETFs): Vanguard surpassed BlackRock’s iShares for the title of largest U.S. issuer.

iShares wore that crown since 2003. Admittedly, the leadership gap is narrow, implying some level of fluidity. Vanguard has $4.39 trillion in U.S. ETF assets under management while iShares has $4.36 trillion. But if it’s numbers we’re talking about, Vanguard’s seemingly inevitable ascent to the top spot is noteworthy and for reasons beyond sheer assets.

iShares is one of the “OGs” of the ETF industry as it launched its first ETF in 1996, but Vanguard didn’t launch its first ETF – the Vanguard Total Stock Market ETF (NYSE: VTI) – until 2001. The Pennsylvania-based index fund giant also got to the top spot with far fewer products than iShares. Vanguard has 113 ETFs trading in the U.S. compared to 486 offered by its competitor.

As noted above, Vanguard’s AUM lead over iShares isn’t insurmountable, but it’s also being extended. Year-to-date, Vanguard ETFs have hauled in $291 billion in new assets, or more than doubled the $120 billion taken in by BlackRock ETFs.

This ‘History’ Has Been in the Making

Hindsight is 20/20, but the writing’s been on the wall regarding Vanguard’s ascent to #1 in U.S. ETF asset terms. It’s more than a decade since it jumped to the second spot and it’s over a year since the Vanguard S&P 500 ETF (VOO) became the world’s largest ETF. More recently, VOO became the first and still only ETF to amass $1 trillion in assets.

As advisors well know, the seemingly never-ending flow of ETF assets to Vanguard is largely attributable to the issuer’s status as a low-cost leader. Rivals are encroaching on that cheap ETF turf, but it’s etched in advisors’ and investors’ minds that Vanguard has the goods when it comes to cheap funds and that helps when it comes to attracting flows.

“Vanguard has steadily chipped away at its rival’s lead as the firm’s core audience of buy-and-hold individual investors and financial advisers kept adding money to its lineup of low-cost funds through nearly every kind of market environment,” reports Bloomberg. “That demand helped Vanguard’s ETFs set multiple industry flow records.”

To be fair, iShares offers plenty of cost-effective ETFs, but the list of the 100 lowest expense ratio ETFs includes 26 Vanguard products, the most of any issuer.

Keeping It Simple Helps, Too

As noted above, though Vanguard by its standards has recently been more active on the new ETF front, the issuer doesn’t rely on rookie ETFs as asset-gathering tools. Rather, it sticks to tried and true, meat and potatoes funds, such as VOO and VTI, to build relentless inflows.

Said another way, Vanguard does offer a decent amount of style and actively managed ETFs, but the issuer’s bread and butter are cap-weighted, pure beta products that even the most novice investors can easily comprehend.

That’s not “sexy” or thrilling, but the strategy works. The flows confirm as much.

Related: The ETF Fee War Just Got Cheaper: Schwab Cuts Costs Again