Invesco (IVZ) said Thursday it is officially purchasing the ETF business of Guggenheim Investments for $1.2 billion, its second announced acquisition of an ETF provider in four months.
Invesco’s Powershares ETF business is the fourth-largest in the U.S., with $129.2 billion in assets under management as of Sept. 12, Morningstar data show. The purchase, when completed, will add another $36.7 billion in AUM. The deal is expected to close in the second quarter of 2018.
In April, Invesco announced it was buying European ETF company Source, with $18 billion in ETF assets and other $7 billion in subadvised assets, from private equity firm Warburg Pincus. That deal has yet to formally close. Invesco said in a news release its global ETF AUM would total $196 billion as of Aug. 31 with the acquisitions.
Analysts say the purchases are a bet by Invesco that investor interest in the fast-growing ETF business will continue its rapid growth in coming years.
In a research note Thursday, Todd Rosenbluth, director of ETF and mutual fund research at financial research firm CFRA, said he thinks the deal will help PowerShares gain “much needed scale” to compete with established ETF providers and newer entrants. “Indeed, the ‘big three’ iShares, Vanguard and SSGA have expanded their market share to a combined 83% in the past two years, while PowerShares/Guggenheim have a combined 5.3% market share, down from 5.9%,” he said.
Mr. Rosenbluth said CRFRA expects investors to increasingly use passively managed ETFs to build asset allocation strategies, helping to drive continued asset growth for the industry. “PowerShares has been positioning itself in recent years to be a beneficiary of this shift and we view the expected deal favorably,” he said.
Guggenheim’s ETF group was formed by the money manager’s acquisitions of Claymore Group in 2009 and Security Benefit Corp. in 2010, which sold ETFs through its Rydex/SGI subsidiary. Guggenheim said it paid approximately $400 million for Security Benefit Corp.; the purchase price for the Claymore Group was not disclosed.
Even with these acquisitions, Invesco’s AUM will significantly trail BlackRock (BLK), Vanguard Group and State Street Global Advisors. Morningstar’s data show that as of Sept. 12, BlackRock was the largest with $1.2 trillion in ETF AUM under it iShares brand, Vanguard was second with $770.5 billion and SSGA third with $553.4 billion.
Analysts say they wouldn’t rule out Invesco buying other ETF providers in efforts to continue to build scale to compete with its larger competitors.