BlackRock Profit Surges 27% as Exchange-Traded Funds Fuel Growth

BlackRock Inc. (BLK) , the world’s largest publicly traded money manager, said first-quarter profit surged 27% as investors continued to pour money into its iShares exchange-traded funds at the expense of mutual-fund firms focused on active stock-picking.

Net income rose to $1.09 billion from $859 million a year earlier, the New York-based company said Thursday in a statement. Adjusted earnings per share climbed to $6.70, beating the $6.40 average estimate of analysts in a survey by database provider FactSet.

BlackRock co-founder and CEO Larry Fink continues to reap rewards from his $13.5 billion acquisition in 2009 of Barclays Global Investors, including iShares ETFs that have fueled so much growth that competitors are now scrambling to catch up. Whereas BlackRock used to primarily rely on portfolio managers who actively picked stocks and bonds to beat the market, the firm now gets two-thirds of its $6.32 trillion of assets from iShares and mutual funds that merely try to replicate the performance of benchmark investment indexes.

“Clients continued to use iShares at the core of their portfolios to drive active returns and as simple, efficient tools to manage risk exposure amid market volatility,” Fink said in the statement.

Fink has acknowledged that the firm’s success is increasingly tied to the massive iShares business, which has thrived due to the lower costs of ETFs and their ease of trading — they’re bought and sold on stock exchanges — as rival mutual-fund companies that specialize in active stock-picking have suffered from waning investor demand. ETFs can be traded on a stock exchange and generally track markets rather than trying to beat them. In turn, they usually charge lower fees than traditional mutual funds run by active asset-pickers.

BlackRock is seeing a similar trend in its own sprawling operations.

In the first quarter, iShares attracted $34.6 billion of new investments, while actively managed active-picking mutual funds catering to institutional investors like pension funds and insurance companies saw $7.1 billion of outflows, according to the company’s statement. At the same time, institutional investors pumped $10.4 billion into BlackRock’s index-tracking mutual funds.

Overall, BlackRock netted $56.9 billion of client inflows during the quarter, leaving overall assets under management up 17% over the past year.

Last year, assets invested in ETFs in the U.S. increased by 34% to a record $3.42 trillion, according to the London-based research firm ETFGI. The growth of $874 billion was more than double the previous record, set in 2016.

Over the past decade, actively managed stock funds have seen net outflows of $1.1 trillion, while index funds and ETFs have pulled in a net $1.4 trillion, according to the Investment Company Institute, the main lobbying group for money managers.

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