Solid ETF Asset Inflows Boost BlackRock Earnings

BlackRock Inc. BLK reported adjusted earnings of $5.92 per share in the third quarter of 2017, beating the Zacks Consensus Estimate of $5.59 and improving 15% from the year-ago quarter. A solid improvement in assets under management (AUM) seems to have spurred the earnings beat.

The company witnessed strong inflows during the quarter. ETF investors’ contributions were huge to take BlackRock’s assets under management to around $6 trillion at the end of third-quarter 2017 (up 17%), mainly due to soaring sales of its iShares exchange traded funds. Assets under management for the ETF business were $1.640 trillion, making up about 27% of its total assets. BlackRock noted that its iShares exchange-traded funds business witnessed $52.3 billion in long-term net inflows, among which $33.1 billion was equity inflows.

Revenues of BlackRock (GAAP basis) grew 14% year over year to $3.23 billion thanks to higher investment advisory, administration fees and securities lending revenues, technology and risk management revenues, and investment advisory performance fees. The reported figure came ahead of the Zacks Consensus Estimate of $3.11 billion.

What’s Behind Constant Success

The world's largest asset manager has been making a kill for the last few quarters thanks to strong ETF inflows. BlackRock slashed expense fees for some of its iShares ETFs in recent times. It is being said that the company took the step to provide tough competition to other low-cost players like Vanguard and Schwab (read: 6 ETF Trends Likely to Take Centre Stage in 2017).

For example, BlackRock lowered fees for its S&P 500 tracking ETF, iShares Core S&P 500 IVV, from 0.07% to 0.04%. The fee cut made IVV less expensive than another popular ETF – SPDR S&P 500 ETF SPY – in its domain. The fund charges 9 bps in fees. However, yet another S&P 500-based ETF, Vanguard S&P 500 ETF VOO, also charges 4 bps in fees (read: Buy These ETFs as BlackRock Cuts Fees).

Most interestingly, despite the fee cut, BlackRock has managed to see a 15% year-over-year increase in adjusted operating income. Apart from fee cuts, honing in on active management business seems to be another cause of success. Management noted that assets under management for its scientific active equity group surged 86% in the third quarter from the year-ago period.Increased usage of big data and machine learning helped BlackRock to position its active business well.

ETFs in focus

Let’s take a look at Q3 inflows (as per etf.com) for some iShares ETFs that have undergone fee cuts in recent times.

iShares Core S&P 500 ETF (IVV) – $6.30 billion

iShares Core S&P Total Stock Market ETF ITOT – $1.11 billion

iShares Core S&P Small-Cap ETF IJR – $1.62 billion

iShares Core MSCI Total International Stock ETF IXUS –$708.2 million

iShares Core MSCI EAFE ETF IEFA – $6.38 billion

iShares Core MSCI Emerging Markets ETF IEMG – $2.42 billion

iShares Core U.S. Aggregate Bond ETF AGG – $2.82 billion

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