BlackRock profits beat forecasts as investors race to low-cost funds

NEW YORK BlackRock Inc (BLK.N), the world’s biggest asset manager, reported better-than-expected quarterly profits on Friday as it clamped down on expenses and investors stormed into lower-cost funds to take advantage of a year-end rally.

Investors poured $88 billion into the company’s market-tracking index investments and its iShares exchange-traded funds during the quarter, while pulling $546 million from funds managed actively by portfolio managers, underscoring the stark dichotomy of investors favoring lower-cost investments.

The New York-based company’s net income fell to $851 million in the fourth quarter from $861 million a year earlier. Earnings per share, however, rose to $5.13, from $5.11, as the number of shares outstanding decreased.

Yet after adjusting to remove the effect of tax adjustments that it said do not impact the company’s cash, earnings were $5.14 per share. Analysts on average had expected earnings of $5.02 per share, according to Thomson Reuters I/B/E/S.

“We have the footprint, we have the breadth of product that clients are looking for,” BlackRock CEO Larry Fink told Reuters. “If the trend is toward passive (investing) for awhile, that’s okay.”

The final quarter of 2016 included the surprise November election of Donald Trump, whose campaign promises to cut taxes and regulations sparked a rally in U.S. stocks.

But U.S. fund managers who actively pick stocks still experienced record withdrawals as investors favored lower-cost passive funds and ETFs.

BlackRock, by contrast, specializes in such passive funds. And it cut prices on its lowest-cost investments further during the quarter, while keeping a tight lid on expenses, for instance reducing headcount in 2016. Total expenses in the quarter fell 3.5 percent.

The company took nearly $58 billion into stock funds and $25 billion into fixed-income funds.

The company also said it is hiking its dividend by 9 percent and ramping up its share buyback program.

BlackRock’s shares, which rose nearly 12 percent in 2016, were little changed in premarket trading.

BlackRock ended the quarter with $5.15 trillion in assets under management, up from a year earlier when managed assets totaled $4.65 trillion.

(Additional reporting by Diptendu Lahiri in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski)