Fundamentals Strong But Uncertain Global Outlook A Problem
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
BlackRock (NYSE: BLK) is a forerunner in investment & risk management and advisory services for institutional and retail clients all over the world. The company adopts mostly passive strategies for assets under management.
BlackRock provides investors with a nice dividend yield, and despite industry headwinds, the firm has consistently raised its payout. Over the several months, the firm has mostly recieved positive feedback from analysts. However, the global uncertain scenario makes the future of the company appear a bit uncertain.
The world’s largest money manager reported a 24% increase in fourth quarter profits amid stronger than expected performance of exchange-traded funds and investment related to bonds. Blackrock reported $690 million or $3.96 per share in the fourth quarter profits on an unadjusted basis. Earnings were better than analysts’ estimates of $3.73 per share.
The company reported net inflows of $31.2 billion in equity, $12.4 in fixed income, and $4.1 billion in multi-asset class product. By the end of the fourth quarter, BlackRock had $3.792 trillion in assets under management, up 7.94% from $3.513 trillion in the same period a year ago.
Legg Mason (NYSE: LM) posted its biggest quarterly loss since 2008 for the three months ended Dec. 31. The company reported a loss of $453.9 million, or $3.45 a share, mainly due to redemptions and declining assets forced Legg Mason to write down assets tied to the 2005 takeover of Citigroup asset-management business and to the firm’s Permal hedge-fund unit.
Charles Schwab (NYSE: SCHW) fourth quarter profit increased over last year, reflecting improved revenues and growth in new brokerage accounts. However, the results were adversely affected by lower trading revenues. Brokerage and investment manager posted net income of $189 million or $0.15 per share compared to $163 million or $0.13 per share in the prior-year quarter.
A Good move to Outperform Rivals
Recently, BlackRock announced to cut fees on six iShares funds and introduce four new low-cost funds. Though the cut in fees could hamper the BlackRock's annual revenue by $35 million to $40 million, but the growth from new ETFs could overtake the losses.
BlackRock cut fees in October for six ETFs and brought a new low-fee exchange-traded fund to compete with Fidelity Investments, Vanguard Group and Charles Schwab, The competitors had been rapidly gaining market share in the ETF world. IShares, the ETF BlackRock purchased from Barclays in 2009, remains the biggest ETF player in the space. Ishares attracted $35.7 billion in new customer funds during the fourth quarter alone.
In BlackRock's first significant purchase for the firm's alternative investors unit, set up in 2010: BlackRock announced plans to acquire Swiss Re’s private equity fund. The deal will give BlackRock access to large European investors.
IShares has already expanded their impetus and presence in Europe over the past 18 months while no other provider has gained incremental market share, and there appears to be some panic amongst competitors (Lyxor recently lost two executives). The transaction could help iShares widen their momentum in the near term and keep others from gaining momentum.
BlackRock announced that iShares dominated the global industry in 2012 by raking in $85.3 billion in new flows. The contributions came in from all regions. However iShares U.S. product line dominated the other regions with a record $61.0 billion of new assets in 2012, outpacing the earlier record of U.S. iShares of $59.1 billion in 2007. IShares global AUM reached $758.6 billion as of 31 December 2012.
In Europe, iShares received 56% of all new money entering European ETPs, recording $18.3bn in net new flows. Canada iShares also witnessed a robust year with asset under management (AUM) increasing to $42.0 billion. The broader Canadian market posted the second highest rate of growth in ETF assets of any region for 2012.
IShares has a wide variety of customers: from capital market participants seeking deep liquidity, to investors wanting specialized exposure, to a growing segment of the market using ETFs as buy and hold investment vehicles.
Larry Fink, CEO of BlackRock, has dismissed talks of resignation. Fink says that he will stay with the company as board agrees. He also said that the company is looking ahead to positive fourth quarter revenue and that the revenue prospects will be favorable. There is a greater focus towards revenue contribution and the company is looking forward to 5% to 6% organic growth.
BLK is well positioned to succeed in the volatile industry, and revenue and income should grow nicely in 2013. The company has stated that it will not expand into different areas just for the sake of growth.
However, there are some issues which cannot be let go. According to management at BLK there are severe headwinds on industry revenues indicating outflows, fading between alpha/beta solutions. Other than this the rising regulatory burdens on the industry and also globally.
Considering all the factors mentioned in this article, investors may be better off with a wait and watch mode.
valuewalk has no position in any stocks mentioned. The Motley Fool recommends BlackRock. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!