Heavy ETF inflows help BlackRock’s tide over its fee-cuts

Unlike BlackRock, very few companies in the world have been able to build a successful index fund franchise like its iShares.

The world’s biggest asset manager, BlackRock, has reported a double digit profit in its first quarter report of this year with investors ploughing in their money into its index funds.

Despite the good news, BlackRock’s shares slipped as the revenues it reported fell short of analysts’ expectations.

The company’s assets under its management have grown by 22%, in comparison to the previous year, to $5.4 trillion.

“There is a greater belief that long-term returns are structurally lower than they were 10 and 20 years ago,” said Fink to analysts on a conference call. “Fees take up a lot of that return. And as long as we believe the world is going to be in a low-return environment, our clients are under a lot of pressure.

As per Macrae Sykes, an analyst with Gabelli & Co, “They have a history of exceeding expectations. This quarter they didn’t.”

Investors have poured $82.2 billion into its iShares exchange-traded funds and index funds during the first quarter. Its pricier active funds posted $1.8 billion in withdrawals.

Investors are increasingly choosing to place their bets using ETFs that track indexes at a relatively low cost.

Unlike BlackRock, very few companies in the world have been able to build a successful index fund franchise like its iShares.

The company’s net income rose to $862 million, equivalent to $5.23 per share. Excluding items, it earned $5.25 per share.

Focus on ETFs

BlackRock has pushed investors to use ETFs more often and in more innovative ways. While typically ETFs were seen by investors as a device through which they could track stock indexes, but with BlackRock aggressively marketed fixed-income ETFs to institutions, they have covered new ground, since these institutions normally prefer bonds.

This strategy has paid off: U.S.-based bond ETFs have attracted a record cash inflow last quarter, said a researcher at Morningstar Inc with its iShares taking $4 out of $10 of that money.

BlackRock has also created a low-cost lineup of 25 “Core” ETFs for regular investors who are looking to build a basic portfolio. These funds compete with its more aggressive rivals such as Charles Schwab Corp and Vanguard Group.

Interestingly, these 25 Core ETFs have accounted for 54% of iShares inflows during the last quarter.

The success did come with a cost, as BlackRock was forced to lower its fees last October.

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