BLK BlackRock Inc

By Sarah Krouse 

The world's largest money manager pulled in record new cash in 2016 as investors poured more money into lower-cost index-tracking funds.

BlackRock Inc.'s assets under management rose 11% to $5.15 trillion from a year ago, boosted by $202.2 billion in net inflows in 2016, according to an earnings release. The strongest drivers of that new money were institutional investors and its iShares exchange-traded fund unit.

During the final three months of the year, investors pulled $546 million from BlackRock's actively managed products while investing $88.31 billion into its iShares and indexed funds.

BlackRock's flows reinforce the ongoing shift in investor taste for lower-cost passive funds that track the performance of indexes.

Chief Executive Laurence Fink said investors that sat on the sidelines in the run-up to the U.S. presidential election returned to the market in the final three months of the year. "Institutions paused and in the fourth quarter, they put a lot of that money to work," he said in an interview.

While markets have rallied since the election, he said there are "many different forks in the road" some of which are very positive and others that are not depending on domestic- and foreign-policy decisions made by President-elect Donald Trump.

"I'm not euphoric. I'm not bearish. I'm circumspect," he said, adding, "I'd say right now the market is probably focused more on the positives, less on the negatives."

Despite the potential for regulatory changes in Washintgon, D.C., the brokers that sell BlackRock's funds continue to prepare for new rules from the Labor Department that require brokers to act in the best interest of clients, Mr. Fink said. Mr. Trump's plans for the rule are not known, but some financial-industry experts expect the rules to be delayed or rolled back.

"We have not witnessed any slowdown in the behavior of our distribution partners," Mr. Fink said.

The rules are expected to push more assets into lower-cost exchange-traded funds. BlackRock executives said Friday morning that advisers and brokers are increasingly building model-portfolios comprised of ETFs, which is likely to lead to further asset growth.

"It just shows they are winning the land grab" ahead of the implementation of the Labor Department rules, said Kyle Sanders, an analyst at Edward Jones. BlackRock's flows were double what Mr. Sanders expected and he said other publicly traded asset managers are likely to report minimal new flows in the fourth quarter.

Despite the record new money flowing into the firm, many of BlackRock's stockpickers and managers that use quantitative methods to try to beat the market posted mixed performance numbers at the end of 2016. More than half of the assets in the firm's traditional actively managed stock products underperformed their benchmarks or peers over one year at the end of 2016, up from less than a quarter a year earlier.

Over three years, 38% were underperforming, compared with 40% at the same time last year. Among the firm's quantitative "scientific active equity" funds, 57% underperformed their benchmark or peer group at the end of the year, up from 35% of those funds at the same time last year. Over three years, 20% were underperforming, up from 10% at the end of 2015.

Mr. Fink said European equity performance, including wrong bets on the outcome of the U.K.'s vote to leave the European Union, had weighed on performance figures. Asian equities and dividend products, meanwhile, did well, he said.

"We have pockets where we're in good shape and a few things we have to nurse along," he said.

BlackRock increased its quarterly dividend to $2.50 from $2.29 and added 6 million shares to its buyback program. The company can now buy back up to 9 million shares.

In all, BlackRock reported a profit of $851 million in the fourth quarter, down from $861 million a year prior. Per-share earnings grew to $5.13 from $5.11, as the number of shares outstanding fell 1.6%. Excluding certain items, BlackRock earned $5.14 a share, up from $4.75 a year prior.

Revenue increased 0.9% to $2.89 billion. Analysts had projected $5.02 a share in adjusted earnings on $2.93 billion in revenue, according to Thomson Reuters.

BlackRock shares, up 8.3% over the past three months, rose 1.76% in early trading.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

January 13, 2017 11:23 ET (16:23 GMT)

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