Vanguard’s rise in the ETF space is the money management version of the classic tortoise and hare fable.

The world's largest mutual fund company arrived relatively late to the ETF game in May 2001, but is on the verge of passing State Street, ranked second according to new data from ETF.com Analytics, in terms of biggest amount of ETF assets under management. (By comparison, State Street began offering ETFs in January 1993; Barclays/BlackRock in March 1996.)

“State Street and Barclays, now BlackRock, were the early leaders in the ETF industry, and as a late arrival, Vanguard made a name for itself by offering significantly lower management fees in its ETFs,” says Brian Bush of Stephens Inc. Capital Management. Bush explains that other providers have since lowered their fees in response, but Vanguard has secured its position as the “low cost provider” in the market and continues to reap the benefits.

Vanguard had total ETF assets of $351 billion, compared with $379 billion for State Street Global Advisors, the second-biggest ETF company in the world. With $2.4 trillion in assets under management and roughly half of those in indexed products, Vanguard dominated ETF gathering in the first quarter, new data from ETF.com Analytics shows. It pulled in over 90% of the more than $15 billion that investors poured into U.S.-listed ETFs in the first three months of the year.

Between those flows and the S&P 500’s 1.81% increase in the quarter, ETF assets rose to $1.736 trillion. That was up 2% from the end of the last year and up almost 20% from the end of the year-ago first quarter, according to data compiled by ETF.com.

The three most popular ETFs in the first quarter were all from Vanguard. As ranked by ETF.com, they were: 

1) Vanguard FTSE Europe ETF (VGK), inflows of $2.3 billion

2) Vanguard REIT ETF (VNQ), inflows of $1.90 billion

3) Vanguard FTSE Developed Markets ETF (VEA), inflows of $1.86 billion

“Vanguard will continue to gain market share but the fund industry will remain a fragmented industry for some time to come – it will not be like Apple and Samsung dominating the smart phone market,” predicts Colorado CFP Allan Roth, who examined the implications of Vanguard’s growth last month on financial-planning.com. Ultimately, Vanguard’s size allows it to lower the cost of products, which is a good thing for investors and advisors, Roth says. On the other hand, if Vanguard becomes too big it could be a problem, with the potential to make Vanguard less competitive and too complacent. “For now, though, Vanguard is taking advantage of investors getting the fact that costs matter when it comes to ETF and mutual fund products, and advisors need to meet that demand. … Right now they’re doing a good job, but what happens in the future remains to be seen.”

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