What's going on?
BlackRock, the world’s largest investment management firm, reported its latest results on Wednesday – and they beat Wall Street’s expectations on every measure!
What does this mean?
During the financial crisis, Barclays Bank sold its ETF business to BlackRock to help it raise money to weather the storm (an “ETF” is an investment that trades like a stock but whose price closely tracks the value of something else, like the overall US stock market). Eight years on, the popularity of ETFs has soared and, as the world’s biggest ETF player, BlackRock has been a huge beneficiary. In its latest quarter, BlackRock’s profit jumped almost 10% versus the same period last year (largely led by its ETF business). Its clients have already given it more money to manage so far this year than they did all of last year, which was itself a record year.
Why should I care?
For the market: BlackRock is differentiating its business model from typical investment managers.
Dan Loeb, a very well-known investor, argues that BlackRock is creating businesses that are so large and entrenched that they are protected from most other competitors, specifically referencing both its ETF business and its division that provides data analysis to investors. Such businesses are also growing faster than traditional investment managers. The combination is a good one for Blackrock’s investors, as evidenced by its stock already climbing more than 20% so far this year.
The bigger picture: “Active” management is actually having quite a good year.
Using ETFs is often referred to as “passive” investing, as they don’t usually incorporate the old-school practice of actively choosing certain stocks over others. But as that business soars, the stock-picking industry is also having its best year since the financial crisis (relative to the overall market’s performance). Whether this strong performance can be sustained, and whether it ultimately leads to more investors putting money into “active” investing, is a big question.