Index Trackers Lift BlackRock -- WSJ
April 20 2017 - 3:02AM
Dow Jones News
By Sarah Krouse
BlackRock Inc. posted increases in everything from revenue to
assets in the first quarter, but the world's largest asset manager
wasn't immune from the dynamics causing headaches for many in its
industry.
The New York firm pulled in a net $64.6 billion, thanks largely
to investors seeking out lower-cost funds that track the
performance of indexes. Assets under management rose 14% from a
year ago, to $5.42 trillion. Profits were up 31%.
But clients who are losing faith in more traditional stock
pickers continued to pull money from that unit of BlackRock.
Investors withdrew a net $6.8 billion from BlackRock's actively
managed equity products during the first quarter.
BlackRock is in the midst of overhauling its stock-picking
business in an effort that has included layoffs, pricing changes
and a greater emphasis on computer models that inform
investments.
"Active equities is not dead at BlackRock," Chief Executive
Laurence Fink said in an interview. The firm is working to mitigate
outflows in problem areas and bring in new money in areas that have
delivered more consistent performance, he said.
BlackRock, as part of its overhaul, will be offering its Main
Street customers lower-cost quantitative stock funds that rely on
data and computer systems to make predictions, an investment option
previously available only to large institutional investors. Mr.
Fink said the firm's quantitative funds started 2017 with "probably
the best performance of any year" after a difficult 2016.
The performance of existing quantitative funds improved in the
first quarter compared with the same period a year ago. Over one
year, 18% of those assets underperformed their benchmark or peers,
down from 59% at the end of the first quarter of 2016. Over three
years 15% of assets underperformed, compared with 16% a year
ago.
During the first quarter BlackRock attracted net new money in
indexed funds, actively managed fixed-income funds and multiasset
strategies. But the big driver was its giant iShares ETF business,
which attracted a net $44.6 billion into equity exchange-traded
funds. The equity ETFs inflows were about 70% of total iShares net
inflows during the period.
Some in the money-management world are seeking out mergers as a
way to survive the industry shift to lower-cost funds. Mr. Fink
said he expects more consolidation ahead.
"We're the last financial services industry that hasn't had the
consolidation, unlike banks and insurance companies and brokers,"
he said.
In all, BlackRock reported a profit of $862 million, or $5.23 a
share, in its first quarter, up from $657 million, or $3.92 a
share, a year prior. Excluding certain items, BlackRock earned an
adjusted $5.25 a share, up from $4.25 a year prior.
Revenue increased 7.6% to $2.82 billion. Analysts polled by
Thomson Reuters had projected $4.89 a share in adjusted earnings on
$2.87 billion in revenue.
Some analysts questioned whether some of the firm's
ultralow-cost ETFs had led the firm to fall short of Wall Street's
revenue expectations.
But Mr. Fink said revenue from fund fees was in line with
expectations. Firm executives attributed the difference between the
firm's revenue and analyst expectations in part to foreign-exchange
movements and other factors.
BlackRock shares, up 1.7% over the past three months, were down
1.6% in afternoon trading.
--Austen Hufford contributed to this article.
Write to Sarah Krouse at sarah.krouse@wsj.com
(END) Dow Jones Newswires
April 20, 2017 02:47 ET (06:47 GMT)
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