Vanguard and BlackRock are two of the largest fund and ETF houses. With AUM of over $1.5T each, both the fund houses closely track market indices, provide diversified asset exposure, and employ a host of passive investment strategies, which allow the funds to have some of the lowest expense ratios in the industry.
When comparing funds, it becomes important to differentiate between quantitative factors (such as performance, volatility, Sharpe ratio) and qualitative factors (such as fund manager reputation and service providers).
For this blog, using the latest N-CEN filings on RADiENT (as of 15th March 2021), we compare Vanguard's index funds (12 funds) and BlackRock's iShares ETFs (292 funds), and the agents who service and contribute towards the performance of these funds.
Securities Lending
Vanguard loans securities approximating a monthly average value of $ 8.5 B and receives $364 M through the year as net income, whereas iShares receives ~$317 million from a monthly average of $35.7 B.
Net income from securities lending
| Vanguard | $ 364 Million |
| iShares | $ 317 Million |
According to a previous report by Vanguard’s Jim Rowley (Head of active/passive portfolio research), “ Vanguard takes a value approach that ensures only selective securities are lent out, which means there’s more demand to borrow them. So, the lending fee we collect on that is at a premium to that of lending other shares. We have less out on loan, but the income we generate on that lesser amount is a higher percentage”
Brokers
|
Broker Data |
Vanguard |
iShares |
|
No. of Unique Brokers (all funds) |
17 |
62 |
|
Total Gross Commission (all funds) |
$37 M |
$ 43 M |
Top 3 Brokers by % age of Total Commission
| 1 |
Goldman Sachs & Co ( 17%) |
Credit Suisse (14%) |
| 2 |
MLV & Co (15%) |
Citigroup (10%) |
| 3 |
Credit Suisse (12%) |
Morgan Stanley & Co (8.5%) |
Data shows that the two funds share several brokers, including Credit Suisse, Goldman Sachs, Morgan Stanley, Deutsche Bank, and Jefferies. The top 3 brokers for Vanguard, service all their funds. iShares is majorly serviced by Morgan Stanley(188 funds), Goldman Sachs(176 funds), and Credit Suisse and Citigroup (163 funds each).
The structure of the fund houses could help us understand the reason behind the diversity in the number and nature of brokers that service each of the funds. Vanguard groups multiple ETFs into one share class, whereas iShares allots every ETF into separate share classes.
Custodians
A custodian for an ETF is responsible for safeguarding assets, trade processing, settlements, custody and clearing for the create/redeem process.
| Custodian Data | Vanguard | iShares |
|
No. of Unique Custodians {all funds) |
26 | 74 |
Top 3 Custodians managing most funds
| 1 | JP Morgan Chase Bank (8) | State Street Bank and Trust Company (292) |
| 2 | Deutsche Bank (6) | Euroclear Bank (80) |
| 3 | UBS Switzerland (6) | Mizuho Bank (75) |
The table shows that State Street Bank and Trust Company services all 292 funds for iShares, followed by Euroclear Bank at 80 funds. iShares is serviced by several branches of HSBC, Deutsche Bank, and Citibank globally.
Principal Transactions
“Principal Transaction means a transaction where the registered securities or commodities broker or dealer acts as a principal or underwriter for the broker or dealer's own account, rather than as an agent for the customer”
| Principal Transaction Data | Vanguard | iShares |
|
No of Unique Dealers (All Funds) |
35 | 73 |
| Total Principal aggregate purchase/sale (all funds) | $ 481B | $1.8T |
Top 4 Dealers by Funds Serviced
| 1 | Vanguard Market Liquidity Fund (12) |
BlackRock Funds III - BlackRock Cash Funds: Treasury (242) |
| 2 |
Vanguard Small cap Index Fund (10) |
Morgan Stanley & Co (141) |
| 3 |
Morgan Stanley & Co (10) |
Goldman Sachs & co (129) |
| 4 | Vanguard Total Stock Market Index Fund (9) |
Credit Suisse (122) |
It is interesting to note that Vanguard Market Liquidity Fund, Merrill Lynch, Morgan Stanley & Co, and The BNY Mellon are the largest dealers for Vanguard ETFs both by the number of funds they service and the sum of purchases/ sales. While BlackRock Funds III - BlackRock Cash Funds: Treasury is the largest dealer for the BlackRock Index Fund by the number of funds it services at 242 and National Securities Clearing Corp is the largest dealer by total purchases/ sales at ~$ 454B.
The data also shows that 14 Vanguard funds engaged in total transactions of ~$ 362 B, which is nearly 21% of the total transactions.
Administrators
ETF Administrators handle the day-to-day operational functions while also providing a bundle of other services like updating indexes, assist with publishing NAV, recordkeeping, etc.
The Vanguard Group internally services most funds for Vanguard, while State Street Bank and Trust Company service all the funds for iShares, BlackRock.
Administrators by No. of Funds Services
| Vanguard | iShares |
| The Vanguard Group Inc (12) | State Street Bank and Trust Company (292) |
| JP Morgan Chase Bank (8) |
Additionally, N-CEN data shows that Vanguard has 10 directors on board whereas iShares has 9 directors (for personnel details visit RADiENT). PWC has been registered as the independent public accountant for both Vanguard and iShares. The groups are registered as the principal underwriters for their own funds, i.e.- Blackrock Investments Inc for iShares and Vanguard Marketing Corp for Vanguard Index Funds.
The brokers, custodians and administrators are major agents who affect the performance of their respective funds. Since these agents are big players in the market, it becomes important for the SEC and the fund’s competitors to keep an active check on such census type information.
To gather more such data about various other funds, explore RADiENT’s SEC Filings Explorer!
Vanguard