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BlackRock Chief Executive Larry Fink said Monday that investors are creating a “barbell effect” in the bond market by choosing low-cost exchange-traded funds and alternative assets over traditional bond funds.
After the world’s largest asset manager announced a record $10.6 trillion in assets under management, Fink noted that BlackRock has seen record inflows into its ETF products as well as growing client interest in infrastructure products that invest in energy and data centers.
“Assets are moving” Investors are still sitting on huge amounts of cash and are bracing for a cut in U.S. interest rates. In SeptemberFink said he realized he missed out on some of the big stock market gains this year.
Equity investors are already divided between passive index funds and high-fee private equity funds that promise uncorrelated returns, and now the same dichotomy is happening to bonds, he added.
“It’s often been said that equities have a big barbell effect, and I think we’re starting to see that play out in the fixed income market,” he continued. “We’re in a period where we’re seeing people rebalancing out of cash and moving heavily into bonds, ETFs and alternative income-oriented products like private credit and infrastructure debt funds.”
BlackRock is “very well positioned in that regard” with its huge iShares ETF business and upcoming acquisitions, Fink said. Global Infrastructure PartnerIt is scheduled to be completed by the end of September.
Fink’s comments to analysts came as the world’s largest asset manager reported revenue of $4.81 billion for the quarter ended June 30, up 8% from a year earlier on rising assets under management but slightly below the $4.84 billion that analysts surveyed by Bloomberg had expected.
Improved margins helped net income rise 9% year over year to $1.5 billion. Adjusted figures came in at $1.56 billion, beating expectations of $1.47 billion.
Assets under management increased 1.7% quarter-over-quarter. Net inflows for the quarter were $82 billion, below expectations of $112 billion. Equity inflows fell to $6 billion as institutional investors rebalanced. Fixed income inflows declined due to the loss of one institution that had withdrawn $20 billion.
BlackRock two weeks ago Acquisition of PreqinThe firm continues to work in alternative assets and technology and is a private market data provider. Inflows into its ETFs have been boosted by strong interest in its Bitcoin products.
“BLK’s spending to strengthen its private markets capabilities should help it reduce its reliance on low-fee iShares ETFs and better position itself to take advantage of strong secular growth opportunities within private assets,” Edward Jones analyst Kyle Sanders wrote.
BlackRock has long traded at much higher margins than traditional asset managers, but its shares have lagged the broader financial sector over the past six months, rising 1.4% this year compared with a roughly 12% gain for financial companies in the S&P 500.
Chief Financial Officer Martin Small said the company is on track to achieve its long-term goal of organic fee growth of 5% annually, and that expenses, excluding acquisitions, are on track to grow in the low single digits.
Shares in the asset manager closed down 0.6% on Monday.
