What's going on?
If you smeeeeeeeeeeeell what BlackRock is cooking… you’d probably smell its better-than-expected second-quarter earnings update on Friday, which gave investors a whiff of what the major players have been up to in the last few months.
What does this mean?
BlackRock’s expectation-beating quarterly revenue and profit for the quarter gave investors’ overly pessimistic forecasts the People’s Elbow. That’ll be because BlackRock makes most of its money from the fees it charges on looking after clients’ cash, and that pot has risen 12% since last quarter as asset prices climbed from Rock Bottom levels in March.
Investors also care about BlackRock’s updates because they say a lot about how investors at large were behaving. And just like last quarter, they were moving money away from stocks and into “fixed-income” funds – which focus on things like bonds, currencies, and commodities – and “alternative” funds, like real estate and private equity.
Why should I care?
For markets: Green up your act.
The investor behavior we just mentioned makes sense when you think about it: fixed-income investments offer steady, reliable payments and may have become increasingly popular at a time when investors are questioning stocks’ continued rise. Even renewable and sustainable investments like Europe-focused “green bonds” have gained traction. And not just at BlackRock: Bank of America’s Private Bank said it’s noticed the trend too.
The bigger picture: It doesn’t matter what BlackRock’s name is.
Last quarter, more money flowed into BlackRock’s lower-fee passive exchange-traded funds than into its more expensive actively managed funds. Investors might not see much point paying more at the moment when most major assets are on the rise (tweet this). Investment managers, then, are increasingly advising investors to back more complex alternative funds that might earn a profit no matter what stock and bond markets do – and that, conveniently enough, come with higher fees for the privilege.