BOSTON BlackRock has made a series of acquisitions over the last decade, but its 2009 purchase of Barclays Plc's exchange-traded funds (ETFs) business may look the smartest this quarter.
Though they carry among the lowest fees of any products for investors, BlackRock's iShares line of ETFs produce high-margin profits for the New York-based firm, which posts earnings later on Thursday.
BlackRock's iShares ETF business took in an estimated $4.7 billion in net inflows in the first quarter just in the United States, according to industry estimates. Among the firm's most popular funds during the quarter were the iShares MSCI Japan Index Fund and the iShares iBoxx$ High Yield Corporate Bond Fund.
Analysts expect those inflows to help BlackRock report adjusted earnings per share of $2.75 for the first quarter, up from $2.40 a year ago, according to Thomson Reuters I/B/E/S.
The figures, which do not conform to generally accepted accounting principles, exclude costs from acquisitions and certain compensation plans.
BlackRock, which oversees more than $3.5 trillion in total, is expected to have benefited from rising assets under management, thanks both to market gains and investors pouring money into its funds.
Revenue is expected to come in at $2.2 billion, up from $2.0 billion in the first quarter of 2010.
The results were likely bolstered by rising markets. The Standard & Poor's 500 index was up almost 16 percent for the 12 months ended March 31 and the Barclays Capital Aggregate Bond Index gained more than 5 percent.
Among ETF managers, only mutual fund giant Vanguard Group took in more money in the United States, with estimated net inflow of $10.4 billion in the first quarter. Vanguard has been gaining on iShares for the past two years as it introduced a slew of copycat funds with lower fees and, in some cases, better performance tracking indexes.
BlackRock chief executive Laurence Fink has so far resisted matching Vanguard's lower fees and insisted that customers appreciate iShares' greater trading volume and index breadth.
"They are the market leader so everyone is gunning for them," said Mark Morgan, an analyst at money manager Thrivent Financial for Lutherans in Minneapolis, Minnesota. "But they're still strong in market segments that are growing fastest."
Investors expect that customer outflows related to BlackRock's acquisition of Barclays Plc's money management unit at the end of 2009 will continue to slow this year.
"The acquisition has definitely already succeeded on the cost saving," said Dan Popowics, a fund manager at Fifth Third Asset Management in Cincinnati, Ohio. "Some of the asset growth has been masked by the kinds of outflows that normally occur in a deal like this."
Fink is also adding resources to BlackRock's other lines of business. The firm aims to double its traditional U.S. mutual fund and other retail businesses from $300 billion to $600 billion by 2014, managing director Frank Porcelli told Reuters on April 6.
Shares of BlackRock closed up $1.69, or 0.9 percent, at $193.72 on the New York Stock Exchange on Wednesday. The shares have declined 4.7 percent over the past year.
(Editing by Gary Hill and Muralikumar Anantharaman)