BlackRock Inc, the world's largest money manager, reported a higher-than-expected quarterly profit on Thursday, benefiting from strong markets and a flow of new money into its exchange-traded funds and retail business.
The New York-based asset manager ended the fourth quarter through December 31 with $4.3 trillion in assets, including new money and market gains, surpassing the $4 trillion mark for the first time last year.
That asset growth - a 14 percent rise from the end of 2012 - helped drive BlackRock's 24-percent jump in quarterly profit to $841 million, or $4.86 per share, up from $690 million, or $3.93 per share, a year earlier.
BlackRock and its peers make money by charging fees as a percentage of assets under management.
"They are well positioned to generate solid growth almost regardless of the market environment, given that they have a very broad product offering," said Jason Weyeneth, a New York-based analyst with Sterne, Agee & Leach Inc, focusing on the asset management sector.
BlackRock shares were up 1.7 percent at $317.96 in afternoon trading on the New York Stock Exchange, after earlier jumping as much as 4.2 percent. The stock surged 53 percent in 2013, riding an equity market rally that also boosted its peers.
The company said its board had approved a 15 percent increase in its quarterly cash dividend to $1.93 per common share, payable in March.
Excluding long-term compensation expenses and other items, earnings were $4.92 a share, above analysts' average forecast of $4.33, according to Thomson Reuters I/B/E/S.
Analysts said part of that profit gain may have been driven by a lower tax rate and better than expected performance fees.
Revenue grew 9 percent to $2.8 billion. Revenue generated by fees based on a portfolio's performance rose 2 percent to $268 million from a year earlier.
BlackRock has benefited from increased investor appetite for the less-expensive indexed funds provided by iShares, which the company acquired from Barclays in 2009 and is now the largest U.S. provider of ETFs. iShares makes up 21 percent of the company's assets under management.
Of the $40.5 billion that investors poured into long-term funds during the quarter, nearly half - $19.1 billion - went into the company's iShares exchange-traded funds business. Retail investors accounted for $16.6 billion, or 41 percent of total long-term net flows.
"You typically observe retail coming in when markets have recovered and look more stable, and they tend to sell when things get choppy," said St. Louis-based Edward Jones analyst Jim Shanahan.
"Institutions are taking profits at these levels and retail is piling in," Shanahan said, noting that the increased activity on the retail side was consistent with the broader industry.
BlackRock has been expanding its iShares business within the U.S. and abroad.
"We think Europe is going to be a place of accelerated growth" for ETFs, Chief Executive Officer Laurence Fink said in an interview on Thursday.
BlackRock last year acquired Credit Suisse's ETF business and hired Rachel Lord, previously with Citigroup, to head its iShares business in Europe, the Middle East and Africa.
Fink said he saw the potential for ETF assets to eventually account for 25 percent of the mutual fund industry. ETFs currently represent about 15 percent of the industry.
The bulk of investor money during the quarter went into equities, which accounted for $24.7 billion, or roughly 61 percent, of BlackRock's long-term net inflows.
Investors also added more money than they withdrew in fixed-income funds, which had net inflows of $1.5 billion, and multi-asset products, which had $17.4 billion.
BlackRock is increasingly turning its focus to the retirement market, where it sees a ripe opportunity.
"We believe the defined contribution area is the greatest growth area," Fink said. "We have to start focusing on things like longevity" and education around saving for retirement.
BlackRock said it had $30 billion in net inflows into its defined contribution channel for the year, increasing its total assets in the unit to $525 billion.
That's up 30 percent from last year when assets in defined contribution plans totaled roughly $405 billion. BlackRock now has the fourth-largest franchise in the defined contribution industry in terms of assets in their plans, Fink said.
BlackRock's LifePath target-date funds, which serve more than eight million individual investors, now have more than $100 billion in assets.
Fink said on a call with analysts that BlackRock was forming a new U.S. retirement group that will focus on product development and services geared toward individual investors.
The expansion follows BlackRock's introduction of a new series of indexes and funds called the "CoRI" Retirement Index series, which BlackRock launched last year and allows pre-retirees to estimate how much their current savings would produce in terms of annual income when they turn 65.
The new retirement group will be led by Chip Castille, who heads BlackRock's U.S. and Canada defined contribution group.
(Reporting by Ashley Lau in New York; Additional reporting by Tanya Agrawal; Editing by Lisa Von Ahn, Linda Stern and Bernadette Baum)