BlackRock Inc., the world’s biggest money manager, said first-quarter earnings rose 10% as its exchange-traded stock funds drew client cash and assets increased.
Net income climbed to $632 million, or $3.62 a share, from $572 million, or $3.14, a year earlier, the New York-based company said today in a statement. Excluding certain items, BlackRock’s adjusted earnings of $3.65 a share beat the $3.57 average estimate of 20 analysts surveyed by Bloomberg.
Chief Executive Officer Laurence D. Fink, 60, has reorganized BlackRock’s senior leadership and last month announced 300 job cuts. Last year, BlackRock created a series of lower-fee ETFs to reverse a decline in its U.S. market share and in March announced a partnership with Fidelity Investments as it seeks to sell more ETFs directly to U.S. retail investors. BlackRock gathered $40.5 billion in the first quarter, boosting assets 3.8% to $3.9 trillion.
Net long-term deposits “were solid led by strength in equity ETFs and multi-asset products,” said Daniel Fannon, a San Francisco-based analyst at Jefferies & Co., who had expected clients to put $25 billion into BlackRock funds during the quarter.
BlackRock rose 0.7% to $255.64 at 9:37 a.m. in New York. The shares gained 28% this year through yesterday, compared with the 26% increase in the 20-member Standard & Poor’s index of asset managers and custody banks.
Investors have put money into equities this year amid signs of a strengthening economic recovery and a stock-market rally. BlackRock drew $26.3 billion into its stock ETFs, as clients pulled $1 billion from those that track bond markets. Multi- asset products gathered $9 billion. Investors pulled money from BlackRock’s active products, where managers aim to beat benchmarks by security selection, removing $6.9 billion from active stock funds and $2.4 billion from their fixed-income counterparts.
“We have not seen any large major change in attitude in bonds,” Fink said today in a telephone interview. “I do believe we’re just not seeing the same investor appetite for long-dated bonds and I think that’s going to persist for some time.”
Fink, who co-founded BlackRock in 1988, said today during a conference call with investors that he doesn’t see evidence of a large-scale shift into stocks from bonds, or ‘great rotation,’ as global and high-yield bonds continue to attract investors seeking to boost returns. While investors are moving money from low-yielding cash accounts into equities, they are still cautious about the stock market, Fink said.
BlackRock had $9 billion of net deposits by consumers, the strongest quarter in two years, Fink said. BlackRock President Robert Kapito said in February the firm sees an opportunity to grow by selling more funds to individuals since it’s still “underpenetrated” in the U.S. retail market, excluding ETFs.
Higher assets under management helped BlackRock’s revenue increase 8.9% to $2.4 billion. Total operating expenses increased 7.4% compared with a year earlier to $1.5 billion, as the firm spent $33 million to compensate employees who were cut following last month’s announcement.
The firm, which acquired Barclays Global Investors in December 2009 to expand into passive investments, offers actively managed stock and bond funds, the iShares exchange- traded funds, hedge funds and portfolios that use mathematical models.
BlackRock has revamped equity and fixed-income teams in the last two years to revive deposits into active products. Chris Leavy, chief investment officer of BlackRock’s fundamental equity unit in the Americas, has replaced portfolio managers at strategies representing about 40% of the division’s $115 billion. The bond division was also reorganized last year to give unit heads such as Rick Rieder and Kevin Holt greater autonomy and accountability.
Last year, BlackRock made changes to its ETF unit after losing market share to Vanguard Group Inc., the Valley Forge, Pennsylvania-based money manager that boosted assets in its funds with lower-cost products. BlackRock saw its U.S. ETF market share fall 1 percentage point in 2012 to 41.8%, compared with an increase of 2.1 percentage points for Vanguard to 18.3%, according to State Street Global Advisors.
BlackRock in October created the iShares Core Series, which is made up of six ETFs with lowered fees and four new ones, to attract individual and institutional clients looking to invest over the long term. It had earlier combined the sales teams for its iShares unit, the world’s largest provider of ETFs, and BlackRock’s retail funds.
As part of the agreement with Fidelity, the number of ETFs from iShares that can be traded commission-free by Fidelity clients will more than double to 65 and ETFs from iShares will be used within Fidelity’s managed accounts later this year. BlackRock will also help Fidelity develop ETFs tied to sector strategies.
“In the near-term, we believe BlackRock could continue to outperform on strong ETF inflows and investors playing the ‘retail re-risking’ trade, particularly given ETF share capture from mutual funds,” Morgan Stanley analysts led by Matthew Kelley wrote in an April 4 research note.
ETFs have been the fastest-growing segment of the asset- management business, benefiting money managers such as BlackRock, Vanguard and State Street Corp. In the 12 months ended Feb. 28, ETF assets in the U.S. increased 19% to $1.4 trillion, compared with about 0.5% for mutual funds, which hold $13.5 trillion, according to data from the Washington-based Investment Company Institute.