A Look Under the Hood of Big ETF Marketers

A new study distinguishes one big ETF provider from another in terms of volatility, cost and market risk.


The characteristics of ETF marketers may be as critical a consideration for investors as those of the funds they market, says S&P Capital IQ analyst, Todd Rosenbluth, who has conducted a study of fund companies that reveals the differences among them.

Four companies dominate Capital IQ’s overall rankings of 667 equity ETFs. BlackRock is the largest provider based on its iShares funds’ 41 percent share of the ETF market tracked by Capital IQ, with 203 of the rankings.

The rankings themselves evaluate funds based on valuation risk and cost after examining their holdings, expense ratios and volatility. As of the end of June, Capital IQ issued top scores to 25 percent of the total, or 167 funds.

Of those 167, 118 are from three providers besides BlackRock’s iShares, including State Street Global Advisors’ SPDR funds, Invesco’s PowerShares and Vanguard funds. Other marketers with funds that score highest include WisdomTree, First Trust and Market Vectors.

Rosenbluth’s report, “Looking Under the Hood at Key ETF Providers,” says Vanguard funds, not surprisingly, have the lowest average expense ratio of all of the top four’s funds, at just 0.17 percent, and rank third out of the four for highest average dividends. BlackRock’s iShares funds have the highest average dividend yield of the four major competitors, but also rank high on S&P’s risk assessment scale, meaning the iShares products that deliver those dividends come with “a little bit more elevated risk than some of their peers,” says Rosenbluth. This is probably due to the funds’ higher international equity holdings, which expose them to more market risk, he says.

On the other hand, investors looking for specific country exposures may want iShares, as the BlackRock funds hold more single-country positions than the three other largest sponsors. Among BlackRock funds in this category are the MSCI United Kingdom (EWU) and MSCI Taiwan (EWT) ETFs.

Invesco’s PowerShares, for its part, excels in providing low volatility, according to Rosenbluth’s study. But this requires an approach that comes close to active management and is not without cost, as PowerShares funds’ expense ratios average several times those of Vanguard’s ETFs, at 0.72 percent.

Funds offered by State Street, the oldest of the big four providers, offers good industry-specific vehicles, says Rosenbluth. State Street’s newer industry-specific fund, SPDR S&P Aerospace & Defense (XAR 58 Overweight), for example, offers more concentration than its established Industry Select SPDR (XLI 35 Overweight).