Is consolidation inevitable?
Some are wondering if smaller asset management companies’ fates have been all but sealed after activist investing firm Trian Partners took nearly 10% stakes each in Invesco and Janus Henderson.
Trian, led by billionaire investor Nelson Peltz, has a history of pushing for better returns at struggling companies and, in recent years, asset managers in particular.
Invesco shares are down more than 34% year to date while Janus Henderson’s are practically flat as both companies face increasing pressure from larger competitors such as Vanguard and BlackRock.
“We’ve said for a long time that scale is necessary and that leads to consolidation in the industry,” Armando Senra, head of iShares Americas at BlackRock, told CNBC’s “ETF Edge” on Monday.
“What it allows you is to bring innovation to the market, to delivery quality and value to investors,” he said. “Think about what we’ve done this year, our ability to bring to market at scale, with quality, over 40 new products.”
Those include a suite of new future-focused exchange-traded funds — the BlackRock Future Health ETF (BMED), the BlackRock Future Tech ETF (BTEK) and the BlackRock Future Innovators ETF (BFTR) — as well as the iShares Virtual Work and Life Multisector ETF (IWFH), a new way to play the stay-at-home surge.
“That’s something that you need to do with scale,” Senra said. “We do believe in consolidation in the industry.”
Jim Lowell, chief investment officer at Adviser Investments, said “the trend is in place” already for more consolidation among asset managers after a similar phenomenon with mutual fund companies.
“The ETF industry is clearly going to do much the same,” Lowell said in the same “ETF Edge” interview. “And, for the benefit for the retail investor and the professional advisor, it usually leads to lower costs for the underlying products, whether they’re actively managed mutual funds, passive indexes or ETFs.”
Kevin O’Leary, chairman of O’Shares ETFs and a panelist on “Shark Tank,” said in the same interview that “innovation will always drive this market.”
“The thing about the ETF itself as a structure [is] it will ultimately be the most successful investment vehicle for institutions and individuals because it’s transparent, … it’s low cost and it’s incredibly tax-efficient,” O’Leary said.
“I feel that we’re really only in the fourth, maybe the fifth inning of what this sector’s going to be. And the innovation that comes in the form of factor-based or actively managed or all the other ideas that are being floated [is] incredibly healthy.”
Disclosure: Invesco is the sponsor for CNBC’s “ETF Edge.” Additionally, CNBC owns the exclusive off-network cable rights to “Shark Tank,” which features O’Leary as a panelist.
