BlackRock, the world’s largest asset manager, continued to reap the benefits of the passive investing revolution in the first quarter of this year as investors ditched actively managed mutual funds for cheaper exchange-traded funds that track a variety of indexes.
The company said Wednesday that it earned $862 million, or $5.23 a share, in the first quarter, up 31 percent from the same quarter a year earlier. Adjusted for certain items, BlackRock earned $5.25 a share, sharply higher than the consensus estimate of $4.89 a share expected by analysts surveyed by Thomson Reuters.
Assets under management reached a record high, climbing 14 percent for the year to $5.4 trillion.
As has been the case since BlackRock purchased the ETF business of Barclay’s in 2009, growth at the firm has been driven by persistent investor inflows into the iShares family of exchange-traded funds, which follow all the major indexes.
The ability to buy and sell these in an instant and the fact that their price is a third of the amount of a traditional mutual fund have made them attractive to an increasingly cost-conscious investor community.
Out of the $80 billion that flowed into BlackRock’s coffers this year, $64.5 billion was directed toward iShares bond and equity exchange-traded funds.
In terms of the ETF boom, it was one of the company’s more successful quarters. Even after three robust years of growth, there are no signs of tapering in any way.
Vanguard, the indexing giant that is one of BlackRock’s main rivals, attracted $121.5 billion in new assets last quarter, an extraordinary figure for just three months.
The stellar quarter also explains why BlackRock’s chief executive, Laurence D. Fink, has decided to bet the firm’s future on systematic styles of investing that deploy machine-driven formulas as opposed to the classic model of relying on individual portfolio managers to pick stocks as a way of beating the market index.
Fink, who in recent years has been pushing BlackRock to invest more deeply in technology, also highlighted the continued growth of Aladdin, the firm’s risk management system that other institutions pay BlackRock a fee to use. Aladdin revenues grew 12 percent for the quarter.
Last month, Fink laid off dozens of portfolio managers and changed the investment strategies of $30 billion in fund assets.
Perhaps more than any other quarter, these last three months defined Fink’s future vision of his company: Investment styles that rely on actively managed strategies saw outflows of $1.8 billion while all passive funds (index and ETFs) attracted inflows of $82.1 billion.
A telling 64 percent of the firm’s assets under management are now in passive-focused index and exchange-traded funds, with just 29 percent in funds that follow active strategies.