Over the last decade, the largest asset managers have gotten bigger and more powerful. Just five — Vanguard, BlackRock, Fidelity Investments, American Funds, and T. Rowe Price — control 55 percent of the $19.3 trillion in total assets of U.S. mutual funds and exchange-traded funds.
But that concentration partly reflects the juggernauts that dominate passive investments, which are all about volume and keeping costs down. Indeed, BlackRock and Vanguard alone oversee $12 trillion in assets, if mutual funds tracked by Morningstar are included as well as institutional mandates.
A deeper dive into the data shows that competition in the U.S. asset management industry remains healthy. According to research done by Morningstar Direct for Institutional Investor, the top five active managers controlled only 22 percent of mutual fund and ETF assets as of the end of 2018. These figures have been fairly steady for at least the last five years. That’s a far cry from the 55 percent run by the top five when both active and passive are included.
Critics of the increasing concentration of the asset management industry say investors will face a declining number of investment options over time and pressures will mount on small firms — a unique source of top returns. They also fear that a few firms could pose a systemic risk to the industry, if investors pull their money en masse during a crisis.
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However, Morningstar’s analysis for II showed that active managers have plenty of other active managers with which to compete. The top 10 active managers represented 30 percent of the total, while the top 25 managers represented 39 percent of the total as of the end of 2018.
When passive is added in, the numbers look quite different. Including index funds, the top 25 largest fund families accounted for a whopping 82 percent of investors’ assets in U.S. funds, according to a Morningstar report released Wednesday on the top 150 fund families. And that’s growing. Just six months ago, the top 25 accounted for 81 percent of assets. A year ago, that figure was 79 percent.
Even though the industry has its dominant players, the ground has always been shifting. The names of the top firms in active management over the last decade have changed. The top 5 names in 2018 were American Funds, Fidelity Investments, Vanguard, T. Rowe Price, and Dimensional Fund Advisors. Ten years ago, the top five included American, Fidelity, and Vanguard, as well as PIMCO and Franklin Templeton.
In 2008, Dimensional Fund Advisors wasn’t even in the top 10. It had $66 billion in assets, compared to American’s $734 billion. Last year, however, Dimensional was the fifth largest mutual fund company with $364 billion in assets. It brought in $10 billion in new assets over the last year, while T. Rowe Price and Invesco lost $20 billion and $31 billion, respectively. Just looking at the institutional share class, Dimensional was the largest manager in 2018.
There’s no doubt that the power of the asset management industry, like almost every other industry worldwide from autos to computer services, has consolidated into fewer and fewer hands.
But it’s not all bad news. Vanguard has a 25.4 percent market share of mutual funds, according to Morningstar. Its closest competitor is BlackRock’s iShares family with a 9.63 percent market share. But Vanguard isn’t a publicly traded company that has to serve public shareholders. Instead, it is owned by investors in its funds and returns profits to shareholders in the form of lower expenses. Not bad, at least for investors.
