(Bloomberg) — BlackRock Inc., the worlds largest money manager, said second-quarter profit rose 1.4 percent as it attracted money into higher-fee products including active funds and exchange-traded funds.
Net income increased to $819 million, or $4.84 a share, from $808 million, or $4.72, a year earlier, the New York-based company said Wednesday in a statement. Adjusted earnings of $4.96 a share beat the $4.79 average of 19 analysts surveyed by Bloomberg. Shares were little changed in New York trading.
Chief Executive Officer Laurence D. Fink is adding products including currency-hedged ETFs, infrastructure investments and quantitative strategies while working to improve performance of the firms actively managed funds. That paid off in the second quarter, giving the firm a revenue boost from these higher-fee funds.
Investors pulled $7.3 billion from its funds in the quarter, bringing assets to $4.72 trillion, from $4.77 trillion in the prior period.
BlackRocks iShares ETFs attracted almost $10.9 billion and its retail products added another $10.8 billion. Investors took out $31.4 billion from institutional index offerings.
BlackRock shares rose 0.3 percent today to $343.91 as of 10:09 a.m. in New York, compared with an increase of 0.4 percent for the Standard & Poors 19-company index of asset managers and custody banks. Shares of the company had fallen 4.2 percent this year before today, compared with a 1.2 percent drop for the index.
They beat expectations but it was only slightly, and that index outflow was a little bit of a surprise, said Macrae Sykes, an analyst with Gabelli & Co. They continue to chug along, but obviously its been a little more challenging in the marketplace.
Keeping Money
Fink cited the example of an institutional client which redeemed its investment from an index product to illustrate how BlackRock has changed: the client put the money in a BlackRock active fund.
Three years ago, if we had an outflow in index, we might not have had the opportunities to win that active piece, he said in a telephone interview. Were able to navigate around our clients asset allocation issues.
Much of the redemption came from official institutions. If their economies had a turn or change in circumstances of commodity prices, they probably needed to use that money, Fink said. Obviously we had those outflows, and inflows from those same exact clients.
BlackRocks revenue rose 4.6 percent to $2.9 billion from the same period last year, spurred by clients moving to more expensive actively-managed funds.
Big Turnaround
Fink has struggled to turn around the firms traditional stock-picking unit, with the performance of 70 of its 84 actively managed U.S. equity funds ranking in the bottom half of their categories over the five years through the end of May, according to data from Morningstar Inc. Clients pulled money from its actively managed U.S. and international equity funds in 19 of the 21 quarters through May.
The firms fundamental equity funds pulled one-year performance rankings up, with 78 percent of the products beating their benchmark or peer median in the second quarter. That compares with 41 percent in the prior quarter, according to the firm. Over three years, that figure improved to 61 percent from 52 percent.
This is a big turnaround over the last few years, Fink said.
Surprisingly Strong
BlackRocks results were muted by sputtering markets worldwide. The S&P 500 Index fell 0.2 percent in the second quarter after hitting a high on May 21, resulting in the worst first-half to a year since 2010. The MSCI World Index declined 0.3 percent in the quarter.
Theyve got some of the best organic growth in the industry, Luke Montgomery, an analyst at Sanford C. Bernstein & Co., said before results were released. He rates the stock outperform.
While BlackRocks 5 percent annual growth target is a little bit aspirational, the firm achieved 6.1 percent in the previous quarter and 4.3 percent in 2014, Montgomery said. They surprised a few of us with how strong asset growth has been.
Fink said in April that he expects BlackRock to benefit as investors shift to scientific and model-based equity funds. BlackRock hired Columbia Business Schools Andrew Ang as the head of its factor-based strategies group, and brought on Bill MacCartney from Google Inc. to boost quantitative investing.
