BlackRock pivots into megatrends
Our resident columnist, Allan Lane of Algo-Chain examines the growing popularity, with fund managers at least, of themed ETFs…
If you are the world's biggest fund manager what gives? We all know how impossibly hard it is to keep the number one spot year after year, and now that the digitalisation of the fund management industry is in full swing, BlackRock's revenues remain in the crosshairs of many of its much smaller competitors.
In the US, iShares recently launched the latest equity additions to the growing category of themed ETFs. Listed in the US, the iShares Cybersecurity and Tech ETF (IHAK) and iShares Genomics Immunology and Healthcare ETF (IDNA), come with an annual management fee of 0.47 per cent. As part of BlackRock's strategic megatrend investing framework, one might first think these are simply the latest ETFs to compete in the space that Legal & General Investment Management (LGIM) and HanETF have also placed their chips on.
Encoded within this product launch from iShares lies the key driving forces that will reshape the industry for years to come and in the process, I'm reminded of how the ETF industry is very much like the music industry was pre-digitalisation. At its core were the mega companies like Sony BMG, Universal and Warner, and to be found on the fringes were scores of smaller firms looking for their slice of the ‘listeners’ pie. Let's not forget Nirvana first appeared on the scene for the tiny label Sub-Pop, based out of Seattle, before Geffen Records stepped in and bought out their contract.
As mentioned above, HanETF has bet its future on the idea that themed ETFs will dominate the industry going forward, and now it appears that BlackRock is placing that same bet. We shouldn’t overlook the fact that a couple of years ago when ETF Securities sold its themed ETF division, it was the UK’s largest fund manager, LGIM, that stepped up to the plate.
What is it that iShares sees in the tea leaves as it promotes the narrative of themed investing? To answer this, I am reminded of a lady that I once met at an industry conference. She worked for a retail brokerage firm whose main port of call was in the small to mid-cap equity arena. "Allan, how does anyone go about selling an ETF as they are so inherently boring?" she asked.
To be honest, she had a point, which in many ways explains why so many stock pickers can't bring themselves to cross over to a world of index trackers. Once I'd had the chance to gather my thoughts though, I mentioned that looking at the top 10 holdings of an ETF provided the base from which to tell at least 10 interesting stories about that fund.
And so it is with themed investments, as demonstrated in spades by BlackRock's current marketing campaign. The narrative that accompanied this launch comes with the most fascinating suite of infographics and delivers genuinely exciting content. Beat that if you can! If you have ever tried to write something creative about a Gilts ETF, then you'll appreciate the challenge.
So where to next? In many ways, BlackRock’s pivoting into megatrends is just the start and not the end of a re-shaping of the investment management industry. Nobody really cares about the investment wrapper or much of the industry's incantations that goes by the name of 'investment insights'. What investors want is a good story to go with the punchline – will you invest in my fund? Mass innovation, not mass production, is the only driving force that will define the future, and there’s no turning back.