Get free updates from BlackRock Inc
We’ll send you a myFT Daily Digest email every morning with the latest news from BlackRock Inc.
BlackRock forecast bond fund investments to surge once the US Federal Reserve halts rate hikes as the money manager beat earnings expectations and reported assets under management had recovered to $9.4 trillion.
Investors flocked to money market funds to take advantage of rising interest rates – taking the total for U.S. money market funds to more than $5 trillion – but BlackRock said much of that horde is ready to switch to fixed income when investors are confident that further Fed action will not affect yields.
“The fixed income market is finally yielding and we expect demand to pick up again,” said Rob Kapito, chief operating officer. “There are trillions. . . ready to flood the market when people feel interest rates have peaked and we need to position ourselves to take advantage of that.”
While some analysts believe the Fed may pause after another quarter-point hike at its July meeting, BlackRock and its chief executive Larry Fink have repeatedly suggested rates need to stay higher for longer.
Global exchange-traded bond funds surpassed $2 trillion in assets this week, double what they were three years ago, and BlackRock forecasts assets will triple to $6 trillion by 2030.
The New York-based group reported net income of $1.4 billion in the second quarter, up 27 percent from the same period last year, although total revenue and operating income were up 1 percent year-on-year to $4.5 billion declined 3 percent.
Assets under management benefited as a handful of key technology stocks fueled a rebound in the benchmark S&P 500 index and net inflows topped $80 billion for the quarter, below expectations of $92 billion. BlackRock’s cash management products saw inflows of $23 billion.
BlackRock’s soaring profits come as rival money managers grapple with shrinking margins and heightened competition, despite ongoing attacks from Republican politicians in the US for their supposedly “woke” approach to investing.
The group has tried to deflect criticism by emphasizing the breadth of their offering, from index trackers to alternatives. “Customers want more from BlackRock, not less,” said Fink. BlackRock shares are down 1.4 percent as of mid-morning in New York.
BlackRock’s recent cost-cutting efforts have enabled the company to return to an adjusted operating margin of 42 percent, close to where it was in the second quarter of 2022.
“It was a good quarter and the longer-term growth story is still intact despite the lower revenue,” said Michael Brown, analyst at KBW.
BlackRock reported diluted earnings per share of $9.06, up 28 percent year over year. The adjusted reading of $9.28 was higher than the $8.41 expected by analysts polled by Bloomberg.
Revenue from the group’s Aladdin risk management system and other technology services rose 8 percent year-over-year to $359 million, beating analysts’ expectations. The company said at last month’s investor day that two-thirds of its top 25 clients have donated a larger portion of their spending to BlackRock over the past five years.
“They’ve built a better mousetrap by having better technology and options across asset classes,” said Kyle Sanders, equities analyst at Edward Jones. “Most money managers are shrinking and BlackRock has grown.”
T. Rowe Price on Thursday reported net outflows of $20 billion for the quarter, even as assets under management rose to $1.4 trillion on rising markets.