ETFs Driving BlackRock Profit Growth

ETF Trends

BlackRock (BLK), the world’s largest asset manager, said its fourth-quarter profit surged 24% to $841 million, or $4.86 per share, up from $690 million, or $3.93 per share, a year earlier. On an adjusted basis, the parent company of iShares, the world’s largest ETF sponsor, earned $4.92 a share, easily topping Wall Street’s estimate of $4.33 per share.

Digging deeper into the numbers, it is clear BlackRock, a firm built in part by active management, is benefitting from investors’ thirst for passively managed investment options. That means ETFs. At the ETF Virtual Summit, one of the largest conferences for industry insiders and advisors, BlackRock Chief Executive Officer Laurence D. Fink notes rapidly growing ETFs could eventually represent a quarter of the mutual fund industry.

Fink said at ETF Virtual that if active managers continue struggling to beat their benchmarks, ETFs could eventually exceed actively managed mutual funds.  Data support Fink’s assertions. The ETF industry’s staggering growth continued in 2013 as inflows checked in at a record $247.3 billion. That marks the second consecutive year inflows topped $200 billion, according to BlackRock data. [ETF Inflows Race to Record in 2013]

“US ETP assets have grown at a 27% CAGR over the past 10 years. This compares to 7% for mutual funds. In 2013, US ETPs not only kept up with their historical pace by growing 26% but they also achieved the highest asset growth of all ETP regions for the year. Assets increased by $351.7bn, with flows of $190.5bn boosted by record market move for the industry of $161.2bn,” said BlackRock earlier this month.

While the BlackRock name may be synonymous to some as dominant at the institutional level, iShares has made significant inroads with retail investors. Retail investors accounted for $16.6 billion of the firm’s $40.5 billion in inflows last quarter, indicating initiatives such as the iShares Core suite of ETFs are bearing fruit for BlackRock.

The 10 low-cost  iShares Core ETFs debuted in October 2012 and include the $3.3 billion iShares Core MSCI Emerging Markets ETF (IEMG) and the $1.4 billion iShares Core MSCI EAFE ETF (IEFA).

BlackRock is also the subadvisor for the 10 new sector ETFs from Fidelity. Fidelity Senior Vice President Gregory Friedman also spoke at the ETF Virtual Summit, highlight Fidelity’s partnership with BlackRock.

Last year, Fidelity and iShares expanded their partnership to included a more commission-free ETFs on the Fidelity brokerage platform. That relationship expanded in October when Fidelity launched 10 sector ETFs, all with expense ratios of 0.12% per year, making the suite the least expensive group of U.S. sector ETFs.

Those funds include the Fidelity MSCI Industrials Index ETF (FIDU) and the Fidelity MSCI Financials Index ETF (FNCL) .

To watch the interviews with Larry Fink and Gregory Friedman “on demand,” click here.

 

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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