The world’s largest asset manager, BlackRock, posted a better-than-expected quarterly profit as global equity markets remained strong. Investors increased holdings of the company’s funds; this in turn drove fee growth in the period and boosted assets under management to a record high.
Assets under management soared to a record $9.49 trillion in the second quarter from $7.32 trillion a year earlier, an almost 30% increase. BlackRock saw net inflows decline 19.2% year-on-year to $81 billion in Q2 after the $172 billion record set in the prior quarter. Despite increased investments in BlackRock’s various funds, such as its exchange-traded funds (ETF’s), it was impacted by the loss of a $58 billion equity index mandate from a US pension fund client.
Revenue rose 32% to $4.82 billion, buoyed by improved performance fees and 14% growth in revenue from technology services. The annualised organic base fee grew 10% in the quarter thanks to its active platform and iShares ETF franchise. Adjusted operating income rose 37% to $1.9 billion with the operating margin improving to 44.9%. Adjusted net income rose 28% to $1.55 billion, or $10.03 per share. A quarterly dividend of $4.13 per share was declared. Over the period under review $300 million of cash was returned to shareholders in the form of share buybacks.
The US economy kept up its recovery in the past quarter. Thanks to the Federal Reserve slashing interest rates to near zero and embarking on a $120 million-a-month asset purchase program, coupled with trillions of dollars in fiscal stimulus to aid the struggling US economy and the millions of Americans who lost their jobs as a results of lockdowns, the stock market has rallied to record levels after plunging in February and March of last year after the pandemic crashed asset prices and hurt risk sentiment. The broad-equity index is up over 100% since its pandemic-era low on March 23, 2020. BlackRock has benefitted from investors ploughing cash from stimulus efforts into shares and was also hired by the Fed to help execute its extensive bond buying program.
BlackRock is a high quality business with attractive stable margins (net profit margins of 30%), and is a reliable dividend payer. The company trades at a premium to its peers (24.4x earnings versus the industry average of 14.3x), and justifiably so, given its sheer size and quality. The business is forecast to grow earnings and revenue annually by 6.9% and 6.2% respectively - and is currently trading slightly below fair value. BlackRock is likely to continue to benefit from fiscal and monetary stimulus tailwinds in the short term as well as flows towards passive funds.