(Bloomberg) -- BlackRock, the world’s largest money manager, said second-quarter profit rose 1.4 % as it attracted money into higher-fee products including active funds and ETFs.
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.
Chief Executive Officer Laurence D. Fink is adding currency-hedged ETFs and infrastructure investments to attract clients. The firm is also focused on improving the performance of its actively managed products and introducing new quantitative strategies.
“They’ve got some of the best organic growth in the industry,” Luke Montgomery, an analyst at Sanford C. Bernstein, said before results were released. He rates the stock “outperform.”
Investors pulled $7.3 billion from BlackRock’s funds in the quarter, bringing assets to $4.72 trillion, from $4.77 trillion in the prior period. BlackRock’s iShares ETFs attracted almost $10.9 billion and its retail products added another $10.8 billion, as investors pulled $31.4 billion from institutional index offerings.
ACTIVE PRODUCTS
“We saw official institutions buying rainy day funds, it’s raining in parts of the world, and they are using that money for cash needs,” Fink said on CNBC today.
BlackRock’s revenue rose 4.6 % to $2.9 billion from the same period last year as clients moved from low-fee index products into more expensive actively-managed funds.
“We’re a big believer in index funds, ” Fink said on CNBC. “But the story for our second quarter was our success in active products.”
Fink has struggled to turn around the firm’s 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 firm’s fundamental equity funds pulled one-year performance rankings up, with 78 % of the products beating their benchmark or peer median in the second quarter. That compares with 41 % in the prior quarter, according to the firm. Over three years, that figure improved to 61 % from 52 %.
“This is a big turnaround over the last few years,” Fink said.
SURPRISINGLY STRONG
BlackRock’s results were muted by sputtering markets worldwide. The Standard & Poor’s 500 Index fell 0.2 % 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 % in the quarter.
Shares of the company fell 4.2 % this year before today, compared with a 1.2 % drop for the S&P’s 19-company index of asset managers and custody banks.
While BlackRock’s 5 % annual growth target is “a little bit aspirational,” the firm achieved 6.1 % in the previous quarter and 4.3 % 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 School’s Andrew Ang as the head of its factor-based strategies group, and brought on Bill MacCartney from Google to boost quantitative investing.
