BlackRock, one of the world’s largest asset managers, delivered strong financial results for the second quarter. Its diluted earnings increased 3% to $4.84 per share and revenue climbed 5% to $2.9 billion year-over-year. Its assets under management (AUM) increased 3% to $4.72 trillion.
BlackRock Beta Strategies: a positive contributor
JP Morgan analyst Kenneth B. Worthington noted that BlackRock’s Beta Strategies business is large and a positive contributor to its sales and organic growth.
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According to him, BlackRock will grow further “driven by the under penetration of beta strategies globally.” He sees opportunities in Asia and Europe. He noted that BlackRock remains the leader in Smart Beta, which is becoming increasingly popular worldwide.
Worthington noted that the equity beta at BlckRock was a big business representing $2.2 trillion of AUM in the second quarter. The business drives 30% of the firm’s total revenue. The firm estimated that its share of the global equity beta market is 30%.
The analysts emphasized that “institutional investors are increasingly looking towards Smart Beta with low volatility, income and ESG products.” According to him, there is a global interest in Smart Beta.
Worthington observed that BlackRock is differentiating its products through the “pursuit of alpha” within its beta strategies. It has a team that works with index providers to execute best-in-class rebalancing. The team also works independently to anticipate which stocks will be added or excluded from indices.
BlackRock net outflows
Analysts at Trefis commented that BlackRock’s second-quarter performance was strong, but it “wasn’t smooth sailing all the way” with the firm citing the fact that its recorded $7.3 billion outflows.
The equity research firm noted that it was the first time for the asset manager to experience outflows from its long-term funds since the third quarter of 2012. Trefis added that BlackRock’s valuation was negatively impacted across asset classes—$64 billion was wiped out from its total asset base.
BlackRock mix shift support organic growth in base fees
On the other hand, UBS analysts Brennan Hawken and his team commented that BlackRock’s organic growth was weak. However, they were encouraged to see a 5% organic growth in LT base fees driven by its shift to retail, iShares and active institutional products.
The analysts expected BlackRock’s LT organic AUM growth to grow 3.8% this year and 4.5% in 2016. According to them, BlackRock’s iShares is still strong.
Hawken and his team raised increased their FY15 earnings estimate for BlackRock to $20.10 from $19.82 per share. The analysts maintained their FY16 earnings estimate of $22.65 per share.