BlackRock profit rises 24 percent on equities demand

Thu Jan 17, 2013 1:28pm EST

A BlackRock building is seen in New York June 12, 2009. REUTERS/Eric Thayer

A BlackRock building is seen in New York June 12, 2009.

Credit: Reuters/Eric Thayer

(Reuters) - BlackRock Inc (BLK.N), the world's largest money manager, said on Thursday its fourth-quarter profit rose 24 percent, bolstered by increased investor confidence in global stock markets.

Shares of New York-based BlackRock jumped 4.7 percent to $232.58, a three-year high, on the New York Stock Exchange. The stock has been on a tear of late, gaining more than 20 percent since mid-November.

With bond yields stuck near historic lows and equity markets surging, investors have begun to shift their money to stock funds after years of sticking with more conservative fixed income products. That benefited BlackRock and other money managers, which make most of their money by charging clients fees as a percentage of their assets under management, since fees on stock funds tend to be higher than those on bonds funds.

New York-based BlackRock benefited doubly from the strong global equity markets. The MSCI All-Country World Index .MIWD00000PUS gained 2.5 percent in the fourth quarter and 13.4 percent over the past year, increasing the value of BlackRock's asset base to a record $3.8 trillion, and encouraging investors to put more money to work in its higher-fee stock funds.

Investors poured a total of $47 billion into BlackRock's long-term funds, including $31 billion into stocks, and $14 billion into money market funds and short-term products. Rising markets added $62 billion in value, helping total assets under management to increase 3 percent in the quarter and 8 percent from a year earlier.

Analysts said the results demonstrated that even a firm as large as BlackRock could still post strong growth. Glenn Schorr at Nomura Securities called the results "a pretty darn good quarter," with customer inflows, revenue and profits all coming in ahead of analyst expectations.

"Momentum in asset gathering was very strong, driven by its ETF business," added analyst Mac Sykes at Gabelli & Co.

RISK OF BONDS

The fourth-quarter shift toward stocks mainly reflected growing concerns about the riskiness of bonds, BlackRock Chief Executive Laurence Fink said on a call with analysts. Interest rates are so low that an increase of 15 hundredths of a percentage point could wipe out a year of performance gains, Fink said.

"What we are seeing is clients understanding the embedded risk at these low interest rates for bonds and now migrating into equities," Fink said.

The trend toward stocks appeared to have accelerated into 2013. Investors added $7.5 billion into U.S.-based equity mutual funds last week, the biggest weekly inflow in 11 years, according to data from Lipper, a unit of Thomson Reuters.

"So far this year, we're seeing strong inflows after a strong fourth quarter," Fink said on the call.

BlackRock's net income totaled $690 million, or $3.93 per share, in the fourth quarter, compared with $555 million, or $3.05 per share, a year earlier. Analysts, on average, expected BlackRock to earn $3.73 per share, excluding certain items, according to Thomson Reuters I/B/E/S. On that basis, BlackRock earned $3.96.

As the largest manager of ETFs, BlackRock also benefited from growing investor desire to use the low-cost, index-based funds instead of actively managed funds that have tended to underperform the market in recent years.

Of the $47 billion added to BlackRock's long-term funds, almost $36 billion went into iShares. Investors withdrew $5.4 billion from BlackRock's actively managed equity funds and $374 million from active bond funds.

BlackRock rolled out a new line of even cheaper "core" iShares ETFs in October to better compete with offerings from Vanguard Group and Charles Schwab Corp (SCHW.N). The funds attracted $4.6 billion from customers in the quarter.

(Reporting by Aaron Pressman; Editing by Alden Bentley, Jeffrey Benkoe and; Leslie Gevirtz)

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