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Even as BlackRock is set to amass $1 trillion in exchange-traded fund assets in its iShares business, U.S. retail investors increasingly prefer to send their money to low-cost leader Vanguard.

With $998 billion in ETF money, BlackRock has more than the next contenders, Vanguard and State Street, combined.

But the company has struggled to compete with Vanguard, known for its investor-friendly low-cost investing, for mom and pop's nest eggs. Retail investors now account for more than half of the $1.8 trillion in ETF assets under management in the U.S, according to consulting firm PwC.

So far this year, Vanguard has pulled in about $30.3 billion in net new ETF money in the U.S., or about 43% of the market, while iShares is second with $24.7 billion, or about 35%.

That reflects a trend that's been going on for years: At the end of 2009, BlackRock had 47.7% of total U.S. ETF assets under management, compared with 11.7% for Vanguard. By the end of May, BlackRock's market share was down to 38.9%, compared with 20.6% for Vanguard, according to Lipper.

"Our aspiration is to be number one in flows, and we can't get there without being higher in the retail market place," said Mark Wiedman, the BlackRock executive who heads the iShares business globally, speaking at the company's annual meeting in New York in June. "We are starting to change our voice for that audience and I would say historically we frankly haven't done that good a job."

The market share loss comes in spite of BlackRock's two-year effort to win retail investors.

BlackRock introduced a line of low-cost "buy and hold" investor-aimed ETFs in 2012, and since then has been cutting the fees on its ETFs, revamping its sales team, and pushing a new branding campaign. The firm has cut expenses on 12 funds since 2012, ranging from its S&P Total U.S. Stock Market ETF then to its high-dividend ETF in June 2014.

BlackRock says its flows have improved since it started its new retail effort.

One of the most significant price reductions was in its iShares High Dividend ETF. The cost to investors for that fund dropped to 0.12% of assets a year from 0.40%, a move that would cost BlackRock $11.2 million annually, based on the $4 billion in the fund. Last quarter, iShares ETFs generated some $765 million in base fees revenue.

"Every basis point that you cut a fee impacts revenues, but we don't really look at that — we look at the profitability of our ETF business over the long term," BlackRock executive Frank Porcelli, head of U.S. Wealth Advisory Business, said at Reuters' Global Wealth Management Summit in June.

Asked about how fee cuts would affect BlackRock's profits, he said it was "not relevant."

With $4.4 trillion in total assets among its various product lines, BlackRock remains the world's largest asset manager and is unlikely to be eclipsed by Vanguard anytime soon.

BlackRock has nearly tripled the size of the iShares business since it bought it from Barclays five years ago, largely by selling to big institutions, such as the Arizona State Retirement System, which plunked down $300 million to seed three iShares funds last year. It has also won institutional and retail investors abroad; BlackRock has a strong presence in Europe, Asia, Canada and Latin America. Total BlackRock ETF assets outside of the U.S. are about $280.5 billion, about 36 percent of the $700 billion total market.

Analysts say that iShares' size and scale makes the effect of fee cuts in the near-term fairly minimal on the overall business, but that a prolonged price war could hurt the firm.

"It's a tough spot to be in," said Edward Jones analyst Jim Shanahan. "There is some growth potential there, but it is slow to materialize and it has to be powerful enough to offset the addition of a lot of these products with fees less than the current weighted average fee rate."

Vanguard, which unlike BlackRock isn't publicly traded, offers significantly cheaper funds. The average expense ratio of a Vanguard ETF is 0.14%, or $14 for every $10,000 invested, compared with the industry average of 0.58%. BlackRock's average expense ratio is 0.32%.

"When talking about large, commoditized ETFs, low cost makes a big difference, and Vanguard is a little bit more competitive," said Gabelli & Co analyst Macrae Sykes.

"Investors recognize Vanguard as the low-cost leader — whether for index funds, for active funds, for bond funds, for money market funds, or for ETFs," said Vanguard spokesman David Hoffman. "We like to say that we've been lowering the cost and complexity of investing for 38 years. We are also increasingly being recognized for our commitment to providing high-quality products that can play an enduring role in a portfolio."