BlackRock Profits Beat Forecasts as Investors Race to Low-Cost FundsBlackRock Profits Beat Forecasts as Investors Race to Low-Cost Funds
Active management continued to experience outflows while passive funds and ETFs made gains.
January 13, 2017
By Trevor Hunnicutt
NEW YORK, Jan 13 (Reuters) - BlackRock Inc, theworld's biggest asset manager, reported better-than-expectedquarterly profits on Friday as it clamped down on expenses andinvestors stormed into lower-cost funds to take advantage of ayear-end rally.
Investors poured $88 billion into the company'smarket-tracking index investments and its iSharesexchange-traded funds during the quarter, while pulling $546million from funds managed actively by portfolio managers,underscoring the stark dichotomy of investors favoringlower-cost investments.
The New York-based company's net income fell to $851 millionin the fourth quarter from $861 million a year earlier. Earningsper share, however, rose to $5.13, from $5.11, as the number ofshares outstanding decreased.
Yet after adjusting to remove the effect of tax adjustmentsthat it said do not impact the company's cash, earnings were$5.14 per share. Analysts on average had expected earnings of$5.02 per share, according to Thomson Reuters I/B/E/S.
"We have the footprint, we have the breadth of product thatclients are looking for," BlackRock CEO Larry Fink told Reuters."If the trend is toward passive (investing) for awhile, that'sokay."
The final quarter of 2016 included the surprise Novemberelection of Donald Trump, whose campaign promises to cut taxesand regulations sparked a rally in U.S. stocks.
But U.S. fund managers who actively pick stocks stillexperienced record withdrawals as investors favored lower-costpassive funds and ETFs.
BlackRock, by contrast, specializes in such passive funds.And it cut prices on its lowest-cost investments further duringthe quarter, while keeping a tight lid on expenses, for instancereducing headcount in 2016. Total expenses in the quarter fell3.5 percent.
The company took nearly $58 billion into stock funds and $25billion into fixed-income funds.
The company also said it is hiking its dividend by 9 percentand ramping up its share buyback program.
BlackRock's shares, which rose nearly 12 percent in 2016,were little changed in premarket trading.
BlackRock ended the quarter with $5.15 trillion in assetsunder management, up from a year earlier when managed assetstotaled $4.65 trillion.
(Additional reporting by Diptendu Lahiri in Bengaluru; Editingby Saumyadeb Chakrabarty and Nick Zieminski)
