Bear Market for BlackRock Depicts Worst Fund-Firm Rout Since '08

(Bloomberg) -- It’s been a rough year for shareholders of BlackRock Inc. as asset managers head for their worst decline in a decade.

BlackRock, the world’s largest money manager, has lost 26 percent as investors in the company and its funds cashed out or stayed on the sidelines. Yet that still puts it ahead of many peers who’ve seen their market value crumble even more.

A gauge of fund companies and custody banks has tumbled 29 percent this year, more than three times the S&P 500 index, as stock-market volatility has climbed to the highest in three years. The worst performer in the index, Invesco Ltd., is down 55 percent this year.

Here’s a look at the share performance of asset managers:

Bear Market for BlackRock Depicts Worst Fund-Firm Rout Since '08

BlackRock and its industry counterparts have been some of the biggest beneficiaries of the longest bull market in history. A flood of cash has flowed into their index-tracking funds as broad stock gains encouraged investors to buy the market. But with that strategy taking a hit this year, flows into exchange-traded funds have declined 34 percent, according to data from Bloomberg Intelligence, damping the outlook for asset managers’ revenue.

“They’re not immune to the markets,” Kyle Sanders, an analyst at Edward Jones & Co., said of BlackRock. “If people are heading for the sidelines, there’s not going to be money flowing in to those products -- that’s driving some weakness. It’s the general market mood.”

Read more: Market Slide, Margin Pressure Curb Asset-Manager Enthusiasm

Asked for comment, a BlackRock spokeswoman pointed to a presentation by Chief Financial Officer Gary Shedlin earlier this year. Shedlin noted that the mix of investment products and technology the firm sells sets it apart.

“Our scale and diversification translates into more consistent financial results across market cycles and the ability to invest for the future, whether in good markets or more challenging ones,” Shedlin said at the time.

BlackRock investors have been rewarded over the long haul. The stock has jumped more than six fold from the S&P 500’s bottom in March 2009 through January, when the shares reached a record.

A key portion of BlackRock’s success has been its well-timed purchase of Barclays Global Investors Ltd. in 2009. The $13.5 billion acquisition gave BlackRock its iShares business and today ETFs account for about one-third of the firm’s $6.4 trillion assets under management.

That has, however, left the firm more exposed to any slowing in passive investing. While investors still added $309 billion to U.S. ETFs this year, that’s down from last year’s $466 billion. BlackRock’s U.S. ETFs have brought in about $130 billion, down from 2017, despite a record month in November. Seven of the 10 largest issuers manage the same or less money in their ETFs today than a year ago.

The outlook for issuers of mutual funds is even bleaker. Firms including Franklin Resources Inc. and Legg Mason Inc. have also declined as actively managed mutual funds lost $240 billion as of Nov. 30, according to Bloomberg Intelligence estimates. Those outflows could accelerate if retreating investors consider using ETFs to return to the market.

The one upside: At least ETF traders are sitting pretty. Turnover surpassed $24.8 trillion in 2018, the most on record, with more than $3.1 trillion of ETF shares changing hands in October alone, data compiled by Bloomberg show. Shares in Virtu Financial Inc., one of the largest lead market makers for U.S. ETFs, gained 36 percent.

“The primary reason that the liquidity providers are doing so well this year is the exact reason why the sponsors are doing so poorly: we’ve seen volatility return,” said Mike Venuto, chief investment officer of Toroso Investments, which runs an ETF tracking the industry.

Asset managers, however, are taking note, said Venuto, pointing to acquisitions of trading and investment platforms that will diversify their revenue.

“They will figure out ways to participate in that revenue as it’s the only way they can continue to lower fees,” he said.

©2018 Bloomberg L.P.