BLK BlackRock Inc

By Sarah Krouse 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 13, 2018).

The world's largest asset manager reached a new milestone during 2017: the equivalent of $1 billion of new client cash every day.

The annual net inflow of $367.3 billion helped BlackRock Inc. pass $6 trillion in assets for the first time, up more than $1 trillion from the end of 2016. The record haul during 2017 amounted to more than $698,000 a minute.

Most of BlackRock's new money, or 67%, went to its iShares exchange-traded fund business as investors continue to embrace lower-cost products tied to indexes. The iShares unit finished 2017 with more assets than BlackRock's actively managed products for the first time.

The pace of new investor cash into BlackRock puts it in the same league as rival Vanguard Group, which attracted a net $369.3 billion in new money last year. The two managers now oversee a combined $11.2 trillion, higher than the gross domestic product of China in 2016.

"They're neck and neck," said Kyle Sanders, an analyst at Edward Jones, of BlackRock and Vanguard, which ended 2017 with $4.9 trillion in assets. "It's those two and then it's everyone else fighting for scraps."

Both firms are benefiting from a confluence of factors working in their favor: a stock market boom, recent regulatory changes and a growing investor preference for cheaper ETFs, which are funds for all types of investors that trade on exchanges.

"It's hard for me to see active flows being as strong as what we predict for ETF flows" in the next two years, BlackRock Chief Executive Laurence Fink said in an interview. He cited ongoing regulatory changes in the U.S. and Europe that have led to broader adoption of the funds.

Mr. Fink told employees in the firm's town hall earnings meeting that BlackRock had proven it can compete with Vanguard while making money for shareholders, people familiar with the matter said.

BlackRock reported $2.3 billion in profits during the fourth quarter of 2017, or $14.07 a share, compared with $851 million, or $5.13 a share a year ago. Earnings on an adjusted basis were $1.02 billion, or $6.24 a share, up 20% from $852 million, or $5.14 a share for the same period a year prior.

Analysts polled by Thomson Reuters were expecting adjusted earnings of $6.02 per share.

Revenue at BlackRock rose to $3.47 billion, an increase of 20% from $2.89 billion a year ago. Analysts were expecting $3.32 billion in total revenue.

ETFs account for a growing proportion of BlackRock's fees as well as assets. iShares brought in 39% of BlackRock's base fees at the end of 2017, up from 36% a year earlier.

BlackRock has boosted its ETF flows with fee cuts on some funds, particularly those that offer exposure to broad swaths of the stock and bond markets. It has also increasingly used its Aladdin technology to connect more closely with wealth advisers and created model portfolios of its funds to sell.

Talks about the firm's long-term strategy at a recent two-day board meeting focused on the use of technology in both investing and providing services to Wall Street, Mr. Fink said. Technology and risk management revenue at the firm rose 14% during the year to $677 million.

While BlackRock's ETF unit has attracted the majority of its new assets, there are signs the firm's efforts to improve the performance of its actively managed stock funds are paying off. BlackRock unveiled a plan early last year to rely more heavily on quantitative than traditional strategies in those products and made sweeping fee, research and portfolio management changes.

The firm said 30% of assets in so-called fundamental equity products underperformed their benchmark or peer medium over one year, compared with 52% a year ago. For so-called systematic equity products, its name for quantitatively managed stock funds, 17% of assets underperformed compared with 57% a year ago.

Mr. Fink told analysts he expects the active equity business to attract net new money in 2018.

Allison Prang contributed to this article.

Write to Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

January 13, 2018 02:47 ET (07:47 GMT)

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