BlackRock Gains As ETF Industry’s Assets Swell Past $2 Trillion

In what comes as the latest indication of growing popularity of exchange traded funds (ETFs) and other exchange traded products (ETPs) among investors across the globe, a report by independent consultancy firm ETFGI pegs the size of assets in ETFs and ETPs at the end of Q1 2013 at $2.09 trillion. ^[1] Exchange traded offerings witnessed a net inflow of assets worth $73 billion over the quarter with equity ETFs and ETPs contributing to 85% of this figure.

The continuing wave of support for ETFs comes as great news for all ETF providers in general and BlackRock (NYSE:BLK) in particular – whose iShares contribute to nearly 40% of this market with more than $800 billion in assets. State Street’s (NYSE:STT) SPDR offering comes in at a distant second with 17.5% market share followed by Vanguard’s 13% share.

We maintain our price estimate for BlackRock’s stock at $250, which is slightly below the current market price.

See our full analysis for BlackRock

Since BlackRock acquired iShares from the erstwhile Barclays Global Investors in late 2009, the business has steadily grown to become one of the company’s most important investment offering. Their popularity becomes evident from the fact that the assets invested in equity and fixed-income iShares have grown from under $500 billion at the end of 2009 to well over $800 billion now – representing a CAGR of 15%. This makes iShares the fastest-growing of all investment options provided by the asset management giant.

BlackRock’s iShares assets are roughly split as 70%:30% between equity iShares and fixed-income iShares. And the fact that the ETFGI report shows 85% of net new inflows are for equity ETFs and ETPs means that the portfolio will continue to tilt towards equities.

This benefits BlackRock particularly as the company generates nearly twice as much in fees from equity iShares as a percentage of the asset base when compared to fixed-income iShares. As can be seen from the chart below, BlackRock’s investment advisory fee as a percentage of assets under management in equity iShares has been around 0.4% in recent years – a figure which is around 0.22% for fixed-income iShares.

You can also understand the impact of an increase in equity ETFs on BlackRock’s total share value better by making changes to the chart above.

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1. ETFGI Press Release, Apr 8 2013 [↩]