BlackRock Bounces Back With ‘Huge Excitement’ Over Fixed Income

(Bloomberg) -- BlackRock Inc. rebounded from a rocky end of last year, as customers jumped into its fixed-income products and showed interest in illiquid alternatives.

The world’s largest asset manager saw $65 billion in net inflows in the first quarter, the strongest total since 2017. The results Tuesday helped lift the New York-based company’s assets under management above $6 trillion again after a drop amid market turmoil at the end of 2018.

BlackRock Bounces Back With ‘Huge Excitement’ Over Fixed Income

BlackRock saw clients put money to work, moving from cash to fixed income, Chief Executive Larry Fink said in an interview on CNBC after the earnings report.

"We’re seeing huge excitement in fixed income,” Fink said.

BlackRock’s fixed income products took in $80 billion in the first quarter, driving the company’s $59 billion in long-term net flows. Investors have shown renewed interest in bonds since the Federal Reserve officials signaled this year that an increase in rates is on hold. The pause came after many traders were instead positioning for a stretch of hikes.

The strength in BlackRock’s fixed income business and $6.8 billion in alternatives flows helped mute the impact of investors pulling $26 billion out of BlackRock’s equity products in the period.

Fink commented in the CNBC interview that investors haven’t rushed back into equities even as the stock market bounced back this year.

"There are huge pools of money sitting on the sidelines," Fink said on an earnings conference call later Tuesday.

BlackRock’s iShares division is the largest global issuer of exchange-traded funds and a key piece of its business.

The asset manager often points to fixed-income ETFs as a source of future growth for the industry. Its fixed-income exchange-traded products brought in $32 billion in the first quarter, offsetting $1.6 billion in outflows from its equity ETFs. iShares saw flows of $30.7 billion overall in the period, down from a record $81 billion in the fourth quarter.

BlackRock is recovering from 2018, when the firm saw its share price drop about 24 percent and confronted three straight quarters of institutional outflows. In the first quarter, the company reversed that trend and gathered institutional inflows of $29.1 billion.

What Bloomberg Intelligence Says

“Asset inflows should support BlackRock’s long-term earnings gains, even as global concerns may weigh near-term. Secular expansion and higher market share in the alternative-investments industry may also fuel growth, as the company targets greater ETF exposure as a key opportunity."

Alison Williams, Financials Analyst
Click here to read the research

BlackRock Bounces Back With ‘Huge Excitement’ Over Fixed Income

BlackRock shares were up 2 percent on Tuesday at 10:11 a.m. in New York. It reported earnings per share of $6.61, beating estimates of $6.13 per share, according to analysts surveyed by Bloomberg. Revenue of $3.3 billion fell 7 percent from the same period a year earlier, and was in line with analyst estimates.

“We’ve had a significantly better market tone than we saw in the second half of the year,” said Gary Shedlin, the firm’s chief financial officer, in an interview. Quarterly net flows were driven by key businesses the company’s invested in, he said.

"We feel those investments are paying off," Shedlin added.

Asia-Pacific

In the Asia-Pacific region, where BlackRock is seeking to expand its presence, the company saw $2.9 billion in outflows.

“It seems like things are getting stuck there,” said Kyle Sanders, an analyst for Edward Jones & Co. “It’s a top priority for them and we’re not seeing any progress yet unfortunately.”

Other Highlights

  • The company’s assets under management rose to $6.52 trillion in the period.
  • The firm recently announced some big management changes. In an effort to be more global, it transferred oversight of institutional client businesses to regional leaders.
  • The company reported an 11 percent growth in technology services year-over-year. To further its technology focus, in March BlackRock agreed to acquire French software provider eFront for $1.3 billion.
BlackRock Bounces Back With ‘Huge Excitement’ Over Fixed Income

Get More

  • For BlackRock’s earnings statement, click here.
  • Read Fink’s comments Tuesday on why markets are at risk of a ‘melt up’

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