Most big financial stocks have been decimated this year, but BlackRock, the world’s largest asset manager, is flourishing . It just could be the new king of Wall Street.
BlackRock shares are up 1% this year. which will not sound fantastic, but eking out a gain of any kind during this environment is notable. The Financial Select Sector SPDR Fund, an exchange-traded fund that owns most of the large bank stocks, has plunged nearly 30% thus far in 2020.
The US Federal Reserve System recently tapped BlackRock to run the central bank’s decide to invest in so-called high-yield bond ETFs, a move that has raised eyebrows since BlackRock runs several large fixed-income funds that own high-yield corporate bonds.
The Fed has also slashed interest rates to affect the Covid-19 outbreak and investors are worried about what impact this may wear the profit margins of the lending operations of the large banks.
The slowdown in merger and initial public offering activity is additionally bad news for the likes of Goldman Sachs, JPMorgan Chase, Bank of America, Morgan Stanley and Citigroup. Those five stocks are all down between 20% and 45% this year.
But BlackRock remains seeing huge demand for its iShares family of ETFs, despite the market turmoil.
iShares ETFs are more popular than ever
The company announced in April that it posted $13.8 billion in net inflows to iShares ETFs during the primary quarter. iShares now has $1.85 trillion in assets under management, nearly 30% of the firm’s $6.47 trillion in total assets.
“The ETF business continues to strengthen and is powering the entire company,” said Mac Sykes, an analyst with Gabelli Funds, which owns alittle stake in BlackRock.
And albeit top regional bank PNC recently announced plans to sell its quite 20% stake in BlackRock, a move which will be a symbol PNC is on the prowl for a purchase , BlackRock is about to offset the blow by repurchasing quite $1 billion of its own stock.
So BlackRock could emerge from this market pullback as a corporation which will be ready to report even higher earnings per share since it’ll have fewer shares outstanding.
The recent market crisis could also help BlackRock, also as other big asset managers, now that the Fed is getting to buy high-yield bond ETFs as a part of its many stimulus efforts.
Bloomberg acknowledged in recent story that BlackRock will advise the ny Fed because it looks to take a position in ETFs but that it’ll not charge any fees for doing so.
Socially conscious investing isn’t a fad
Still, BlackRock could also (somewhat controversially) finish up generating more fees from ETFs it caters to individual investors — particularly socially responsible ETFs that BlackRock CEO Larry Fink has championed over the years.
The Institute for Pension Fund Integrity, a firm that tracks state and native pension funds, said during a report in the week that the iShares Global Clean Energy ETF (ICLN) has an expense ratio that’s significantly above its iShares Core S&P 500 ETF (IVV).
The shift to so-called ESG (environmental, social and company governance) funds could be about quite just doing the proper thing.
“BlackRock’s ESG shift is basically about generating extra money for the firm. Pensions got to be focused on generating returns and BlackRock going this route undermines the low cost advantage of indexing,” said the Institute for Pension Fund Integrity during a report.
“Over time, BlackRock will look less sort of a low-fee, efficient index provider and more sort of a higher-fee forecaster of economic and social trends, with a bias toward stocks and bonds that meet its new ESG bias,” the firm added.
Still, BlackRock is latching on to a trend that has captured the minds of the many socially conscious investors.
“Asset flows into ESG mutual funds and ETFs had been steady for much of the past five years before skyrocketing in 2019,” said Brian Price, head of investments for Commonwealth Financial Network, during a report.
“There was no watershed moment that caused this surge, but it did put the industry on notice. ESG investing had evolved into anything but a fad and appeared, in fact, to possess become a permanent fixture within the investment management landscape,” Price added.
So albeit investing in ESG isn’t only for altruistic purposes, it’s an undeniably savvy move that ought to benefit BlackRock.
