Although just a handful of companies dominate, the U.S. fund industry is not overly concentrated, according to a new report from Broadridge.
The data, analytics and tech solutions firm that serves the financial services industry studied the top five firms for assets in each of several categories — the broad mutual fund market overall, index mutual funds, ETFs, closed-end funds and variable annuities — applying a measure of concentration used by the U.S. Justice Department and Federal Trade Commission.
That measure, the Herfindahl-Hirschman index (HHI), is calculated by squaring the market share of each firm in an industry, then adding them. The HHI index ranges from zero to 10,000. If the HHI is less than 1,500, the industry is not concentrated; between 1,500 and 2,500 the industry is moderately concentrated; and above 2,500 highly concentrated. (A score of 10,000 indicates that one company is the entire market.)
Using HHI, Broadridge found that only two categories within the fund market — index mutual funds and ETFs – are highly concentrated, with HHIs of 5,872 and 2,480, respectively. (The AUM figures for each firm are from Lipper’s June 30, 2018, reports.)
Three firms place in the top five of each category, though not in the same order: BlackRock, Charles Schwab and Vanguard, as the charts below show, and Vanguard far and away dominates the index mutual fund market, with a share of more than 75%.