(Bloomberg) -- BlackRock Inc., the worlds biggest money manager, said first-quarter earnings rose 10 percent as its exchange-traded equities funds drew client cash and assets increased.
Net income climbed to $632 million, or $3.62 a share, from $572 million, or $3.14, a year earlier, the New York-based company said today in a statement. Excluding certain items, BlackRocks adjusted earnings of $3.65 a share beat the $3.57 average estimate of 20 analysts surveyed by Bloomberg.
Chief Executive Officer Laurence D. Fink, 60, has reorganized BlackRocks senior leadership and last month announced 300 job cuts. Last year, BlackRock created a series of lower-fee ETFs to reverse a decline in its U.S. market share and in March announced a partnership with Fidelity Investments as it seeks to sell more ETFs directly to U.S. retail investors. BlackRock gathered $40.5 billion in the first quarter, boosting assets 3.8 percent to $3.9 trillion.
This quarter is more broadly supportive of asset managers in general, with strong January flows for both ETFs and mutual funds, Luke Montgomery, a research analyst at Sanford C. Bernstein & Co. in New York, said in an interview before the earnings were announced. For BlackRock, the question is how much did they participate in the trend toward active equities.
BlackRock rose 2.4 percent in electronic trading, before the U.S. markets opened. The shares gained 28 percent this year through yesterday, compared with the 26 percent increase in the 20-member Standard & Poors index of asset managers and custody banks.
Investors have put money into equities this year amid signs of a strengthening economic recovery and a stock-market rally. BlackRock drew $26.3 billion into its stock ETFs, as clients pulled $1 billion from those that track bond markets. Investors pulled money from BlackRocks active products, where managers aim to beat benchmarks by security selection, removing $6.9 billion from active stock funds and $2.4 billion from their fixed-income counterparts.
We have not seen any large major change in attitude in bonds, Fink said today in a telephone interview. I do believe were just not seeing the same investor appetite for long-dated bonds and I think thats going to persist for some time.
Fink, who co-founded BlackRock in 1988, has urged investors to get back into equity markets and said in January clients will start to get comfortable with stocks in passive products and then potentially move to active products if returns are worth the higher expenses.
BlackRock had $9 billion of net deposits by consumers, the strongest quarter in two years, Fink said. BlackRock President Robert Kapito said in February the firm sees an opportunity to grow by selling more funds to individuals since its still underpenetrated in the U.S. retail market, excluding ETFs.
The firm, which acquired Barclays Global Investors in December 2009 to expand into passive investments, offers actively managed stock and bond funds, the iShares exchange- traded funds, hedge funds and portfolios that use mathematical models.
BlackRock has revamped equity and fixed-income teams in the last two years to revive deposits into active products. Chris Leavy, chief investment officer of BlackRocks fundamental equity unit in the Americas, has replaced portfolio managers at strategies representing about 40 percent of the divisions $115 billion. The bond division was also reorganized last year to give unit heads such as Rick Rieder and Kevin Holt greater autonomy and accountability.
Last year, BlackRock made changes to its ETF unit after losing market share to Vanguard Group Inc., the Valley Forge, Pennsylvania-based money manager that boosted assets in its funds with lower-cost products. BlackRock saw its U.S. ETF market share fall 1 percentage point in 2012 to 41.8 percent, compared with an increase of 2.1 percentage points for Vanguard to 18.3 percent, according to State Street Global Advisors.
BlackRock in October created the iShares Core Series, which is made up of six ETFs with lowered fees and four new ones, to attract individual and institutional clients looking to invest over the long term. It had earlier combined the sales teams for its iShares unit, the worlds largest provider of ETFs, and BlackRocks retail funds.
As part of the agreement with Fidelity, the number of ETFs from iShares that can be traded commission-free by Fidelity clients will more than double to 65 and ETFs from iShares will be used within Fidelitys managed accounts later this year. BlackRock will also help Fidelity develop ETFs tied to sector strategies.
In the near-term, we believe BlackRock could continue to outperform on strong ETF inflows and investors playing the retail re-risking trade, particularly given ETF share capture from mutual funds, Morgan Stanley analysts led by Matthew Kelley wrote in an April 4 research note.
ETFs have been the fastest-growing segment of the asset- management business, benefiting money managers such as BlackRock, Vanguard and State Street Corp. In the 12 months ended Feb. 28, ETF assets in the U.S. increased 19 percent to $1.4 trillion, compared with about 0.5 percent for mutual funds, which hold $13.5 trillion, according to data from the Washington-based Investment Company Institute.