著作权
ABSTRACT
This Article examines the large, steady, and continuing growth of the Big Three index fund managers—BlackRock, Vanguard, and State Street Global Advisors. We show that there is a real prospect that index funds will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”
We begin by analyzing the drivers of the rise of the Big Three, including the structural factors that are leading to the heavy concentration of the index funds sector. We then provide empirical evidence about the past growth and current status of the Big Three, and their likely growth into the Giant Three. Among other things, we document that the Big Three have almost quadrupled their collective ownership stake in S&P 500 companies over the past two decades; that they have captured the overwhelming majority of the inflows into the asset management industry over the past decade; that each of them now manages 5% or more of the shares in a vast number of public companies; and that they collectively cast an average of about 25% of the votes at S&P 500 companies.
We then extrapolate from past trends to estimate the future growth of the Big Three. We estimate that the Big Three could well cast as much as 40% of the votes in S&P 500 companies within two decades. Policymakers and others must recognize—and must take seriously—the prospect of a Giant Three scenario. The plausibility of this scenario exacerbates concerns about the problems with index fund incentives that we identify and document in other work.
JEL Classification: G23; G34; K22.
Keywords: Index funds, passive investing, institutional investors, ETFs, Big Three, stewardship, engagement, shareholder activism, corporate voting, ownership concentration.
TABLE OF CONTENTS
Introduction 1
I. The Rise of the Giant Three: Drivers 4
A. The Rise of Institutional Investors 4
B. The Growing Share of Index Funds 5
C. The Concentration of the Index Funds Sector 8
II. The Numbers: Past, Present, Future 12
A. The Past and Present: The Rise of the Big Three 12
B. The Future: The Specter of the Giant Three 17
Conclusion 21
LIST OF FIGURES
Figure 1. Percentage of Corporate Equity Held by Big Three
Index Funds. 14
Figure 2. Big Three Combined Stake—Future Growth Estimated
from Past Trend 18
Figure 3. Expected Future Growth—Big Three Combined
Voting Stake 20
LIST OF TABLES
Table 1. Asset Flows To (From) Active and Index Funds 8
Table 2. Fifty Largest ETFs by Assets Under Management 11
Table 3. Asset Flows to Big Three Mutual Funds and ETFs 13
Table 4. Number of Positions of 5% or More Held
by the Big Three 15
Table 5. Big Three Ownership of U.S. Companies 16
THE SPECTER OF THE GIANT THREE 1
INTRODUCTION
This Article analyzes the steady rise of the “Big Three” index fund managers—Blackrock, Vanguard, and State Street Global Advisors (“SSGA”).1 Based on our analysis of recent trends, we conclude that the Big Three will likely continue to grow into a “Giant Three,” and that the Giant Three will likely come to dominate voting in public companies. This Giant Three scenario raises the importance of the problems with index fund incentives in general, and the Big Three in particular, that we analyze and document in other work.2
Our analysis is divided into three parts. In Part I, we analyze three key drivers that underlie the steady and persistent growth of the Big Three, and which mean that this growth is likely to continue. First, we discuss the factors that have led to the tenfold growth of institutional investor ownership over the past six decades. Second, we document the steady increase in of the proportion of the assets managed by investment managers that are allocated to index funds. Third, we analyze three factors that lead to the heavy concentration of the index fund sector: scale economies, the liquidity benefits offered by exchange-traded funds (“ETFs”) with large assets, and the ability of dominant index fund managers to compete quickly with new products introduced by rivals. These factors are likely to facilitate the continued dominance of the Big Three.
In Part II, we present our empirical analysis of the past growth of the Big Three, their current status as major shareholders of U.S. companies, and their likely future growth. Our empirical analysis focuses on the companies in the S&P 500 and Russell 3000 indices, which represent 73% and 91%
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1 The term “Big Three” has been used in reference to Vanguard, SSGA, and BlackRock (or, prior to 2009, Barclays Global Investors, which BlackRock acquired in that year) for more than a decade. For early uses of the term in the financial press, see Rebecca Knight, Irresistible Rise of the Flexible Fund, FIN. TIMES, Jan. 10, 2006, at 10. The academic study that seems to have been the first to introduce the term to the academic literature is Jan Fichtner et al., Hidden Power of the Big Three? Passive Index Funds, Re-Concentration of Corporate Ownership, and New Financial Risk, 19 BUS. & POL. 298, 298 (2017). This Article substantially expands on the empirical evidence regarding the “bigness” of the Big Three provided by Fichtner et al., by, among other things, analyzing past trends, expected future trends in the growth of the Big Three, and the key factors likely to lead to their continued dominance of the industry.
2 See Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency Problems of Institutional Investors, 31 J. ECON. PERSP. 89, 95 (2017); Lucian Bebchuk & Scott Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy COLUM. L. REV. (forthcoming 2019) (manuscript at 1), http://ssrn.com/abstract_id=3282794.
2 THE SPECTER OF THE GIANT THREE
(respectively) of the total market capitalization of listed U.S. companies as of December 31, 2017.3
We start with the past growth and current status of the Big Three. Among other things, we document that:
• Over the last decade, more than 80% of all assets flowing into investment funds has gone to the Big Three, and the proportion of total funds flowing to the Big Three has been rising through the second half of the decade;
• The average combined stake in S&P 500 companies held by the Big Three essentially quadrupled over the past two decades, from 5.2% in 1998 to 20.5% in 2017;4
• Over the past decade, the number of positions in S&P 500 companies in which the Big Three hold 5% or more of the company’s equity has increased more than five-fold, with each of BlackRock and Vanguard now holding positions of 5% or more of the shares of almost all of the companies in the S&P 500;
• Following two decades of growth, the Big Three now collectively hold an average stake of more than 20% of S&P 500 companies;5 and
• Because the Big Three generally vote all of their shares, whereas not all of the non-Big Three shareholders of those companies do so, shares held by the Big Three represent an average of about 25% of the shares voted in director elections at S&P 500 companies in 2018.
Building on this analysis of past growth, we then proceed to extrapolate from past to predict the likely growth of the Big Three in the next two decades. Assuming that past trends continue, we estimate that the share of votes that the Big Three would cast at S&P 500 companies could well reach about 34% of votes in the next decade, and about 41% of votes in two decades. Thus, if recent trends continue, the Big Three could be expected to become the “Giant Three.” In this Giant Three scenario, three investment managers would largely dominate shareholder voting in practically all significant U.S. companies that do not have a controlling shareholder.
—————————————————————————————————
3 Calculated based on market capitalization data from the Center for Research in Securities Prices. Market capitalization data is based on those types of shares included in the Russell 3000 and S&P 500, including common shares of U.S. companies, non-U.S. companies, real estate investment trusts, shares of beneficial interest, and units of companies incorporated outside the United States.
4 See infra Figure 1, and accompanying text.
5 See infra Table 5, and accompanying text.
THE SPECTER OF THE GIANT THREE 3
We conclude by observing the substantial policy implications of the specter of the Giant Three. Here we build on our large-scale study of index fund stewardship, which analyzes the incentives of index fund managers and provides comprehensive empirical evidence on their stewardship activities.6 That study analyzes and documents the incentives of index fund managers, and especially major fund managers such as the Big Three, to be excessively deferential toward corporate managers. We argue that recognition of the Giant Three scenario increases the importance of the agency problems afflicting Big Three incentives that we have identified. Recognizing the specter of the Giant Three reinforces the importance of a serious consideration of these problems.
In addition to our own prior work, the work that is most closely related to this Article is a recent elegant essay by Professor John Coates.7 Although we and Coates both focus on issues arising from the growing concentration of ownership in the hands of a relatively small number of institutional investors, our works and views differ in key respects. To begin, Coates’s essay focuses on what he labels “the problem of twelve”—that is, the possibility that twelve management teams will gain “practical power over the majority of U.S. public companies.”8 By contrast, we focus on the possibility that a much smaller number of management teams—the Big Three—will come to dominate ownership in most public companies. In addition, this Article differs from Coates’s work in that our empirical analysis focuses on documenting the growth of the Big Three and estimating its future trajectory. Finally, our view on the problems with the growing concentration of ownership substantially differs from that of Coates. Whereas Coates seems to be concerned that investment managers will excessively use the power that comes from their large ownership stakes, we have a very different concern— that the Giant Three will have incentives to be excessively deferential to corporate managers. Our concern is therefore that the substantial proportion of equity ownership with incentives towards deference will depress shareholder intervention overall, and result in insufficient checks on
corporate managers.
Whatever one’s view of the nature of the Giant Three problem and the concerns that it raises, the specter of the Giant Three that we document and analyze represents a major challenge. We hope that our work will highlight for researchers, market participants, and policymakers the importance of the Giant Three scenario. The specter of the Giant Three deserves close attention,
—————————————————————————————————
6 See generally Bebchuk & Hirst, supra note 2.
7 See generally John C. Coates IV, The Future of Corporate Governance Part I: The Problem of Twelve, Harvard John M. Olin Discussion Paper No. 1001, April 2019, http://www.law.harvard.edu/programs/olin_center/papers/pdf/Coates_1001.pdf.
8 Coates IV, supra note 7 at 1.
4 THE SPECTER OF THE GIANT THREE
and our empirical evidence and framework of analysis could inform any future consideration of this subject.
I. THE RISE OF THE GIANT THREE: DRIVERS
This Part analyzes three key drivers that underlie the consistent growth of the Big Three and make it likely that this growth and the related dominance of the Big Three will continue. First, the proportion of shares held by institutional investors has grown considerably and can be expected to continue to grow. Second, of the shares held by institutional investors, the proportion invested in index funds has also grown steadily, and can also be expected to continue to grow. Third, structural factors have led to heavy concentration in the index funds sector, and suggest that the Big Three will only increase their dominance. Sections I.A through I.C examine in turn each of these three drivers.
A. The Rise of Institutional Investors
Over the last fifty years, institutional investors have come to hold a majority of the equity of U.S. public companies.9 From 1950 to 2017, the institutional ownership of corporate equity increased tenfold, from 6.1% to 65%.10 As a result, institutional investors now control a large majority of the shares of public companies and have a dominant impact on vote outcomes at those companies.
—————————————————————————————————
9 For early works on the rise of institutional investors, see, for example, Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520, 567 (1990); Robert Charles Clark, Comment & Review, The Four Stages of Capitalism: Reflections on Investment Management Treatises, 94 HARV. L. REV. 561, 564-65 (1981); Gerald F. Davis, A New Finance Capitalism? Mutual Funds and Ownership Re-Concentration in the United States, 5 EUR. MGMT. REV. 11, 12 (2008); Donald E. Farrar & Lance Girton, Institutional Investors and Concentration of Financial Power: Berle and Means Revisited, 36 J. FIN. 369, 375 (1981); Edward B. Rock, The Logic and (Uncertain) Significance of Institutional Shareholder Activism, 79 GEO. L.J. 445, 447 (1991). For more recent works, see Bebchuk, Cohen & Hirst, supra note 2, at 91; Ronald J. Gilson & Jeffrey N. Gordon, The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, 113 COLUM. L. REV. 863, 874-75 (2013).
10 BD. OF GOVERNORS OF THE FED. RESERVE SYS., FEDERAL RESERVE STATISTICAL RELEASE, Z1: FINANCIAL ACCOUNTS OF THE UNITED STATES: FOURTH QUARTER 2017 130 (2018) (providing evidence of level of ownership in 2017), https://www.federalreserve.gov/ releases/z1/20180308/z1.pdf; MATTEO TONELLO & STEPHAN RABIMOV, THE 2010 INSTITUTIONAL INVESTMENT REPORT: TRENDS IN ASSET ALLOCATION AND PORTFOLIO COMPOSITION 22 (2010), https://www.conference-board.org/publications/pub licationdetail.cfm?publicationid=1872 (providing evidence of level of ownership in 1950).
THE SPECTER OF THE GIANT THREE 5
Many observers have viewed the steady increase in the share of stock owned by institutional investors as being driven by a number of factors.11 Changes in the regulation of retirement savings increased the aggregate amount of retirement savings.12 Retirement savings shifted from bank savings accounts to the public equity markets, as a result of favorable tax changes13 and innovations in equity investment products.14 An increasing focus on the value of low-cost diversification in investments was also met by lower-cost options for achieving such diversification among public equities.15 These factors remain in place, and have led to continuing increases in the proportion of corporate equity owned by institutional investors over the last decade. As a result, it is plausible to expect the increase in institutional ownership to continue.
B. The Growing Share of Index Funds
In addition to the growth in the proportion of corporate equity held by institutional investors, there has also been substantial growth in the proportion of institutional investor assets that are invested in index funds.
Index funds are investment funds:funds that pool the investments of many individuals and others (which we refer to as “beneficial investors”) and invest them in diversified portfolios of assets. Investment funds may invest in debt securities or other assets, but we focus on investment funds that invest in equity securities. Among those equity investment funds, index funds invest in portfolios that attempt to track the performance of a particular benchmark stock market index, such as the S&P 500 or the Russell 3000. Index funds can be either traditional “open-ended” mutual funds or ETFs. A well-known example of an index mutual fund is the Vanguard S&P 500 Mutual Fund. The two largest index ETFs are SSGA’s SPDR S&P 500 ETF and BlackRock’s iShares Core S&P 500 ETFs.16
—————————————————————————————————
11 See, e.g., Edward B. Rock, Institutional Investors in Corporate Governance, in THE OXFORD HANDBOOK OF CORPORATE LAW AND GOVERNANCE 363, 365 (Jeffrey N. Gordon & Wolf-Georg Ringe eds., 2018).
12 See Gilson & Gordon, supra note 9, at 879-80.
13 See Clark, supra note 9, at 575; Davis, supra note 9, at 14-15.
14 See John V. Duca, The Democratization of America’s Capital Markets, ECON. & FIN. REV., Second Quarter 2001, at 10, 13.
15 See id. at 14-15.
16 See infra Table 2
6 THE SPECTER OF THE GIANT THREE
—————————————————————————————————
Exchange Traded Fund
AUM ($bn)
Manager
1. SPDR S&P 500 ETF
$251.48
SSGA
2. iShares Core S&P 500 ETF
$155.17
BlackRock
3. Vanguard S&P 500 ETF
$99.00
Vanguard
4. Vanguard Total Stock Market ETF
$99.00
Vanguard
5. Vanguard FTSE Developed Markets ETF
$66.34
Vanguard
6. Invesco QQQ
$65.72
Non-Big 3
7. iShares MSCI EAFE ETF
$63.77
BlackRock
8. Vanguard FTSE Emerging Markets ETF
$55.89
Vanguard
9. iShares Core MSCI EAFE ETF
$53.81
BlackRock
10. iShares Core MSCI Emerging Markets ETF
$49.67
BlackRock
11. iShares Core S&P Mid-Cap ETF
$44.93
BlackRock
12. Vanguard Value ETF
$43.03
Vanguard
13. iShares Russell 2000 ETF
$42.96
BlackRock
14. iShares Russell 1000 Growth ETF
$40.42
BlackRock
15. iShares Core S&P Small-Cap ETF
$40.38
BlackRock
16. iShares Russell 1000 Value ETF
$38.62
BlackRock
17. Vanguard Growth ETF
$34.36
Vanguard
18. Vanguard Real Estate Index Fund
$30.85
Vanguard
19. Vanguard Dividend Appreciation ETF
$30.37
Vanguard
20. iShares MSCI Emerging Markets ETF
$29.69
BlackRock
21. Financial Select Sector SPDR Fund
$25.68
SSGA
22. Vanguard Mid-Cap Index ETF
$22.45
Vanguard
23. Vanguard Small Cap ETF
$22.18
Vanguard
24. Vanguard High Dividend Yield ETF
$22.07
Vanguard
25. Vanguard FTSE All-World ex-US ETF
$21.21
Vanguard
26. SPDR Dow Jones Industrial Average ETF
$21.13
SSGA
27. iShares S&P 500 Growth ETF
$20.91
BlackRock
28. Health Care Select Sector SPDR Fund
$19.66
SSGA
29. Vanguard Information Technology ETF
$19.10
Vanguard
30. iShares Edge MSCI Min Vol USA ETF
$18.96
BlackRock
31. Technology Select Sector SPDR Fund
$18.72
SSGA
32. SPDR S&P MidCap 400 ETF
$18.06
SSGA
33. iShares Russell 1000 ETF
$17.24
BlackRock
34. iShares Select Dividend ETF
$17.10
BlackRock
35. iShares Russell Midcap ETF
$17.02
BlackRock
36. SPDR S&P Dividend ETF
$16.10
SSGA
37. iShares MSCI Japan ETF
$15.86
BlackRock
38. iShares Core S&P Total U.S. Stock Market ETF
$15.71
BlackRock
39. Schwab International Equity ETF
$15.02
Non-Big 3
40. iShares S&P 500 Value ETF
$15.00
BlackRock
41. iShares J.P. Morgan USD Emerging Markets
Bond ETF
$14.99
BlackRock
42. Energy Select Sector SPDR Fund
$14.69
SSGA
43. iShares U.S. Preferred Stock ETF
$14.21
BlackRock
44. Invesco S&P 500® Equal Weight ETF
$14.20
Non-Big 3
45. Schwab U.S. Large-Cap ETF
$14.12
Non-Big 3
46. Vanguard FTSE Europe ETF
$13.68
Vanguard
47. Consumer Discretionary Select Sector SPDR
Fund
$12.99
SSGA
48. Vanguard Large Cap ETF
$12.65
Vanguard
49. Schwab U.S. Broad Market ETF
$12.59
Non-Big 3
50. Vanguard Small Cap Value ETF
$12.39
Vanguard
Total
$1,851.17
.
THE SPECTER OF THE GIANT THREE 7
The growth of index funds is commonly attributed to a recognition of their advantages compared with active funds: lower costs, superior returns after fees, and tax advantages for investors holding funds in accounts that are not tax-sheltered.17 The shift to index funds has been dramatic, with index funds increasing their share of the total assets invested in equity mutual funds more than eightfold in two decades, from 4% in 1995 to 34% in 2015.18
Table 1 shows the asset flows to (and from, shown in parentheses) both actively managed investment funds and index investment funds during the ten years from 2009 to 2018.19 As Table 1 shows, inflows to index funds have dominated those to actively managed funds over the past decade. From 2009 to 2018, total inflows to actively managed funds were less than $200 billion, with significant outflows over the last five years erasing most of the inflows into actively managed funds over the first five years of that period. In contrast, total inflows to index funds over the same period were more than
$3.4 trillion, eighteen times the total flows to actively managed funds. Flows to index funds over that decade were consistently positive and increased over time: the average inflow from 2014 to 2018 was $476 billion per year, more than double that from 2009 to 2013 ($221.5 billion per year).
—————————————————————————————————
17 For recent writings stressing the advantages of index funds over actively managed funds, see, for example, Gregory Zuckerman, The Passivists: Why Stock Pickers Are Keeping the Faith, WALL STREET J., Oct. 22, 2016, at B1.
18 John C. Bogle, The Index Mutual Fund: 40 Years of Growth, Change, and Challenge, 72 FIN. ANALYSTS J. 9, 9 (2016).
19 Table 1 is based on asset flow data from Morningstar Direct accessed on December 20, 2018. The 2018 figures include data through November 2018.
8 THE SPECTER OF THE GIANT THREE
Table 1. Asset Flows To (From) Active and Index Funds ($ Billions)
(2014-2018)
(2009-2018)
The growth in the share of index funds at the expense of active funds has been partly due to growing levels of investment in ETFs. Because of the way in which ETFs operate and are regulated, they are largely limited to investment strategies that track a defined index.20 As Table 1 indicates, the majority of the substantial growth in index funds has been driven by the growth of ETFs. Flows to index ETFs outpaced flows to index mutual funds every year from 2009 to 2018, and the total asset flow to index ETFs from 2009 to 2018 was 60% greater than the asset flows to index mutual funds over the same period.
C. The Concentration of the Index Funds Sector
Finally, we wish to discuss the heavy concentration of the growing index funds sector in the hands of three major investment managers. As we explain below, there are three structural factors that have contributed to the dominance of a small number of players. Most importantly, these factors are likely to enable these players to retain their dominance over time.
—————————————————————————————————
20 See, e.g., William A. Birdthistle, The Fortunes and Foibles of Exchange-Traded Funds: A Positive Market Response to the Problems of Mutual Funds, 33 DEL. J. CORP. L. 69, 72 (2008).
THE SPECTER OF THE GIANT THREE 9
Economies of Scale. The first factor is the significant economies of scale inherent in operating a fund tracking an index. An ETF with assets of $10 billion would have one hundred times the assets under management of an ETF with assets of $100 million tracking the same index, but the costs of operating the former would likely be much less than one hundred times the cost of operating the latter. These economies of scale provide the operator of the $10 billion ETF with a structural advantage over the operator of the $100 million ETF: the former can charge investors a much smaller expense ratio to cover costs.21 In a recent paper Professors John Adams, Darren Hayunga, and Sattar Mansi provide empirical evidence of significant economies of scale in index fund performance.22 The authors explain that this is partly due to there being some elements of fixed costs for investment funds that can be divided over a larger asset base in the case of large funds, including administration, broker trading commissions, management, and marketing.23
ETF Assets and Liquidity. There is another related factor that arises with respect to ETFs, which represent a growing segment of the index funds sector. An ETF with more assets has a substantial advantage over an ETF tracking the same index with fewer assets, not only because the larger ETF has lower operational costs as a percentage of assets (as described above), but also because the larger ETF offers beneficial investors significant liquidity advantages.
Investors considering ETF investments will consider not only the fees charged by the investment manager but also the bid-ask spreads that the investor will face when they acquire and dispose of their investment in the ETF. An ETF with fewer assets can be expected to have lower liquidity and more significant bid-ask spreads than a larger ETF, which will operate to reduce the total return the investor will enjoy from holding the ETF. Accordingly, index fund managers that have enjoyed a first-mover advantage and that currently manage ETFs with larger volumes of assets can offer investors liquidity benefits that index fund managers operating ETFs tracking the same index but with fewer assets simply cannot emulate. The liquidity advantages of ETFs that already have abundant assets under management can be viewed as a source of network benefits, and such benefits have long been viewed as benefitting and protecting incumbent firms.24 Table 2, below,
—————————————————————————————————
21 See, e.g., Bogle, supra note 7.
22 John Adams, Darren Hayunga & Sattar Mansi, Returns to Scale in Active and Passive Management 27 (Dec. 4, 2018) (unpublished manuscript), https://ssrn.com/abstract=3295799.
23 Id. at 26.
24 See, e.g., Nicholas Economides, Competition Policy in Network Industries: An Introduction, in THE NEW ECONOMY & BEYOND: PAST, PRESENT & FUTURE 96, 104 (Dennis
W. Jansen ed., 2006).
10 THE SPECTER OF THE GIANT THREE
reports the assets under management of the fifty largest equity ETFs.25 These ETFs manage together more than $1.8 trillion, with the largest ETF—the SPDR S&P 500 ETF—holding more than a quarter of a trillion dollars. The fifty largest ETFs are dominated by BlackRock, Vanguard, and SSGA, which manage twenty, sixteen, and nine of the fifty largest ETFs, respectively. Only five of the fifty largest ETFs (and only one of the largest thirty ETFs) are managed by managers other than the Big Three.26 Indeed, managers other than the Big Three manage less than 7% of the assets held in the largest fifty ETFs.27
—————————————————————————————————
25 Data for Table 2 is taken from the ETF Database. Largest ETFs: Top 100 ETFs by Assets, ETFDB.COM, https://etfdb.com/compare/market-cap/ (last visited Apr. 10, 2019).
26 Three of the five non-Big Three ETFs are managed by Charles Schwab and two are managed by Invesco. See infra Table 2.
27 The total assets under management for the fifty largest equity ETFs as listed in Table 2 is $1,851 billion. The total assets under management of the five non-Big Three ETFs in the fifty largest ETFs is $122 billion, or 6.6% of the total assets under management in the fifty largest ETFs.
THE SPECTER OF THE GIANT THREE 11
Table 2. Fifty Largest ETFs by Assets Under Management (“AUM”)
Exchange Traded Fund AUM ($bn) Manager
1. SPDR S&P 500 ETF $251.48 SSGA
2. iShares Core S&P 500 ETF $155.17 BlackRock
3. Vanguard S&P 500 ETF $99.00 Vanguard
4. Vanguard Total Stock Market ETF $99.00 Vanguard
5. Vanguard FTSE Developed Markets ETF $66.34 Vanguard
6. Invesco QQQ $65.72 Non-Big 3
7. iShares MSCI EAFE ETF $63.77 BlackRock
8. Vanguard FTSE Emerging Markets ETF $55.89 Vanguard
9. iShares Core MSCI EAFE ETF $53.81 BlackRock
10. iShares Core MSCI Emerging Markets ETF $49.67 BlackRock
11. iShares Core S&P Mid-Cap ETF $44.93 BlackRock
12. Vanguard Value ETF $43.03 Vanguard
13. iShares Russell 2000 ETF $42.96 BlackRock
14. iShares Russell 1000 Growth ETF $40.42 BlackRock
15. iShares Core S&P Small-Cap ETF $40.38 BlackRock
16. iShares Russell 1000 Value ETF $38.62 BlackRock
17. Vanguard Growth ETF $34.36 Vanguard
18. Vanguard Real Estate Index Fund $30.85 Vanguard
19. Vanguard Dividend Appreciation ETF $30.37 Vanguard
20. iShares MSCI Emerging Markets ETF $29.69 BlackRock
21. Financial Select Sector SPDR Fund $25.68 SSGA
22. Vanguard Mid-Cap Index ETF $22.45 Vanguard
23. Vanguard Small Cap ETF $22.18 Vanguard
24. Vanguard High Dividend Yield ETF $22.07 Vanguard
25. Vanguard FTSE All-World ex-US ETF $21.21 Vanguard
26. SPDR Dow Jones Industrial Average ETF $21.13 SSGA
27. iShares S&P 500 Growth ETF $20.91 BlackRock
28. Health Care Select Sector SPDR Fund $19.66 SSGA
29. Vanguard Information Technology ETF $19.10 Vanguard
30. iShares Edge MSCI Min Vol USA ETF $18.96 BlackRock
31. Technology Select Sector SPDR Fund $18.72 SSGA
32. SPDR S&P MidCap 400 ETF $18.06 SSGA
33. iShares Russell 1000 ETF $17.24 BlackRock
34. iShares Select Dividend ETF $17.10 BlackRock
35. iShares Russell Midcap ETF $17.02 BlackRock
36. SPDR S&P Dividend ETF $16.10 SSGA
37. iShares MSCI Japan ETF $15.86 BlackRock
38. iShares Core S&P Total U.S. Stock Market
ETF $15.71 BlackRock
39. Schwab International Equity ETF $15.02 Non-Big 3
40. iShares S&P 500 Value ETF $15.00 BlackRock
41. iShares J.P. Morgan USD Emerging Markets
Bond ETF $14.99 BlackRock
42. Energy Select Sector SPDR Fund $14.69 SSGA
43. iShares U.S. Preferred Stock ETF $14.21 BlackRock
44. Invesco S&P 500® Equal Weight ETF $14.20 Non-Big 3
45. Schwab U.S. Large-Cap ETF $14.12 Non-Big 3
46. Vanguard FTSE Europe ETF $13.68 Vanguard
47. Consumer Discretionary Select Sector SPDR
Fund $12.99 SSGA
48. Vanguard Large Cap ETF $12.65 Vanguard
49. Schwab U.S. Broad Market ETF $12.59 Non-Big 3
50. Vanguard Small Cap Value ETF $12.39 Vanguard
Total $1,851.17
12 THE SPECTER OF THE GIANT THREE
Difficulty of Disruption. Finally, a factor relevant for assessing the persistence of market concentration is the ease with which rivals are able to unseat dominant incumbents. In some markets incumbent market leaders face significant risks of losing their dominance if a rival develops a disruptive product that customers prefer and that the incumbent is not able to replicate quickly. However, the nature of index fund offerings is such that, if investors show interest in an indexed product that is not currently offered by the Big Three, the Big Three can swiftly offer a very similar competing product. This ability of the dominant players to quickly replicate any product in which investors show an interest contributes to protecting the continued dominance of the existing major players.
II. THE NUMBERS: PAST, PRESENT, FUTURE
This Part provides empirical evidence about the steady rise of the Big Three over the past two decades, as well as their major presence in corporate ownership and voting, and estimates their future growth based on extrapolation from current trends. Section II.A provides evidence about past growth and the present importance of Big Three shareholders. Section II.B extrapolates from these past trends to predict the growth of the Giant Three.
A. The Past a
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