With the rapid growth in popularity of ETFs as an alternative investment group, many investors, both institutional and individual, have taken advantage of increased asset variety. As these products become more abundant and well known throughout the investment community, look for BlackRock (BLK), the owner and beneficiary of many of these funds, to expand their top and bottom lines and outperform. BlackRock's experience and superior market position make it a best of breed name among asset managers, and the ETF revolution will see this trend continue.
BlackRock is a worldwide asset and investment manager that operates in a variety of markets with many financial products and services available to their clients. With $3.79 trillion in assets under management, BlackRock is the largest manager in the world, even though it has been able to stay relatively out of the market spotlight. The company has established itself as a veteran of the financial industry, and has been offering services to investors since 1988. Larry Fink, the current Chairman and CEO of BlackRock, has been with the company since its creation 25 years ago, and has successfully led its clients through many challenging situations, including the dot-com bubble years of 2000-2002 and the financial crisis of 2008-2009. Fink's competent management of the company has paid off through BlackRock's increase in size and influence, with many professionals citing them as one of the most influential financial institutions in the world. In 2009, BlackRock acquired Barclays Global Investors, which included the iShares group of exchange traded fund, or ETF, products. This acquisition proved to be a prime driver of growth for the company, and continues to be a growth factor going forward.
An ETF is a financial product that allows investors to own multiple stocks, bonds, commodities, or other instruments with one security. There are many benefits to the ETF model that attracts investor inflow. An ETF could give access to investors to a financial instrument that couldn't otherwise be traded, such as the VIX, which can be played by the VXX (VXX). ETFs make trading these diverse investment categories more available, liquid, and inexpensive. In return for these new opportunities, ETFs charge a minimal fee as a percentage of assets in the fund. As people have noticed the benefits of ETFs, inflows to these funds have increased tremendously, and with it, income from fees to the managers providing the product.
BlackRock has seen this growth in ETFs and has successfully launched many new types of funds through iShares to meet the new demand. There are now more than 275 iShares products that provide a number of exotic opportunities to people who trade them. Now, investors can trade funds to gain exposure to anything from bond yields to gold bullion to preferred company stock. With so many choices between funds, there are many ways to satisfy clients, and just as many ways BlackRock can receive a steady revenue stream. BlackRock sees increased earnings when market sentiment and confidence is high, because there are more inflows into these investment products. However, if there is a market downturn, BlackRock will still have protection because while some riskier ETFs might see major outflows, funds such as fixed income or lower risk will see increased inflows. This diversity allows BlackRock to benefit no matter the economic or market environment.
The company also has a robust pipeline of new ETFs in planning stages, and new ways to increase ETF traffic. Back in March, BlackRock and Fidelity announced a partnership that allows users of Fidelity's service increased access and deeper support for interacting with iShares products. This relationship with Fidelity means encouragement for more than 20 million investors who use their service to keep money in these funds, which should transfer to higher ETF income for iShares and BlackRock. The company is also working on a fund that would lower fees for European investors to trade ETFs that settle trades across borders, which are currently more expensive to invest with. If BlackRock is able to solve and cheapen the European issue by making one market for ETFs, that could mean a huge influx in European investors who are now able to bring their money to iShares and their products, further increasing BlackRock's share of the market.
The iShares division of BlackRock accounts for 22% of the company's assets under management and 32% of all base fees collected for the company, according to their Q1 press release. This is a large part of BlackRock's income, and with the growth expected from increased inflows and new products, the company's bottom line should see expansion, driving earnings going forward. Earnings are projected to be $16.06 per share for full year 2013, which, at current multiples, puts BlackRock's year-end share price at $321, a 16% gain from these levels. 2014 estimates are 14% above 2013 estimates as well. So if the iShares business can continue to perform, or if investor confidence in the market keeps getting stronger, BlackRock can not only meet those estimates, but even beat them. This isn't counting BlackRock's dividend, which sports a 2.4% yield and has been raised consistently. Overall, a positive fundamental picture going forward.
Over the summer, with interest rates moving higher and global turmoil increasing volatility, I would look for a day of panic selling before I make a move into BLK. The company's long history of success and superior growth position will make it a strong performer in the coming months and years as investors build up the confidence to move into equities and the ETF world.