Asset management leader BlackRock's (
) share prices have risen significantly over the last few days,
jumping from $282 at the beginning of last week to breach the
$300-mark for the first time, before going on to post an all-time
high of almost $308 earlier this week. This represents a gain of
roughly 9% within five days of trading. So what is responsible for
this surge in investor interest for the financial giant?
There are several factors at play here. The most prominent among
them is BlackRock's strong performance figures for Q3 2013 which
were reported on October 16, with the company beating expectations
by coming very close to the record operating performance it
displayed in the second quarter. Despite the uncertain
economic conditions seen over the quarter, BlackRock's fee revenues
remained strong, with the company's total assets under management
rising to $4.1 trillion by the end of the quarter on the back of
its extremely popular iShares ETF offerings. The tight
expense-management measures also helped the bottom line grow 5%
compared to the figure for the same quarter last year, and 3%
Another factor is a recent
Schwab report that forecast strong growth in the global demand for
ETF products over the coming years
- a notion that found considerable support from BlackRock's
CEO Larry Fink in the earnings conference call. As we have
pointed out on many occasions in the past, the higher fee potential
for ETF products compared to their passively-managed counterparts
represents a notable upside to revenues in the future.
And finally, we believe that the Fed's ongoing debate over
whether or not to classify BlackRock as a systemically
important financial institution (
) also had a hand in giving the share prices a leg up. While we
recently argued that
the company would do better without the SIFI tag
, such a classification also signals the importance of a financial
institution to the economy at large - something that can be seen as
a positive from an investor's perspective.
We maintain a
$296 price estimate for BlackRock's stock
, which is slightly below the current market price.
See our full analysis for BlackRock
Since BlackRock acquired iShares from the erstwhile Barclays
Global Investors in late 2009, the offering has seen the fastest
growth among all the investment products the company has to offer.
In fact, something that can be seen in the results for this quarter
is the growing investor preference for BlackRock's equity iShares
offerings compared to its active as well as passive equity funds.
Over the quarter, investors pulled about $10.8 billion in assets
out of BlackRock's active-equity as well as indexed-equity funds,
while they poured in almost $21.1 billion into its equity iShares.
That's more than three-fourths of the $27.7 billion in inflows for
BlackRock this quarter.
A $142 billion appreciation in the value of underlying
securities across various funds, and an additional $54 billion gain
from foreign exchange movements, helped BlackRock notch 6% growth
in its assets under management - from $3.86 trillion at the end of
Q2 2013 to $4.1 trillion at the end of Q3.
Another important aspect of BlackRock's results for the quarter
was a predominantly flat operating expense figure compared to the
previous quarter (as adjusted for one-time costs). The asset
manager has been working hard to keep expenses under check to
ensure profitability as it increases its focus on the retail
investor market - something we highlighted earlier this year in our
article Here's Why BlackRock Strikes The Right Note With Its
Cost-Cutting Plan. Any cost-cutting measure presents a considerable
upside to BlackRock's shares due to the sensitivity of its value to
its operating expenses. This can be understood clearly by making
changes to the chart below.
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