BlackRock Focuses on ETFs as Active Strategy Inflows Decline

by Trefis Team
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BlackRock
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After the lackluster performance of its actively managed funds in the fourth quarter of 2011, BlackRock (NYSE:BLK) is increasing its focus on exchange traded products. In the new year, the company has launched new products and announced plans to expand its ETF offerings in Canada. The company posted a 16% year-over-year decline in its fourth quarter profits, which came to $555 million. Full year net income increased 13% to $2.33 billion and assets under management came to $3.51 trillion, down 1% from $3.56 trillion at the end of 2010. [1] 2011 was marked with significant market volatility that undermined investor confidence and low interest rates, which ate into the profits of the company as well as peers State Street (NYSE:STT) and Charles Schwab (NYSE:SCHW).

We maintain our $196 price estimate for BlackRock, which is about 5% above the current market price. We have made a few adjustments to our forecasts for assets under management as the European debt situation and uncertainty weigh on investor confidence. We have also slightly revised the company’s cost of capital downward for the company given its strong and diverse asset base and relatively stable stock.

See our complete analysis of BlackRock’s stock here

In the fourth quarter, company’s revenues remained sequentially flat at $2.23 billion but were down 11% from the prior year due to lower average assets under management. The persisting debt crisis in Europe and greater attention to risk management led to growth in BlackRock Solutions and advisory revenues, even as revenues from other sources declined compared to Q4 2010. Passive strategies outperformed traditional equity flows, as passive strategies gained $45.3 billion in net inflows, including $20.1 billion from global iShares offerings.

The company has announced plans to acquire Claymore Canada to expand its ETF offerings, which will add around $6.9 billion of assets to the iShares unit. [2] The company has also launched new products such as equity ETFs focused on commodity producers and a multi-asset income fund for retail and institutional investors. [3] [4] We expect the company’s increased focus on alternative, multi-asset and ETF products will help grow assets and revenue in the long-term.

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Notes:
  1. BlackRock Reports Fourth Quarter Diluted EPS of $3.05 ($3.06 as adjusted), BlackRock Press Releases []
  2. BlackRock Agrees to Buy Claymore Canada From Guggenheim in ETF Fund Push, Bloomberg []
  3. iShares Launches Five Global Commodity Producer Equity ETFs, Market Watch []
  4. BlackRock Introduces Multi-Asset Income Fund for Income-Oriented Investors, Market Watch []
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