BlackRock, the world’s largest investor with $4.9 trillion in assets under management, reported quarterly earnings Thursday morning that beat expectations.
Adjusted earnings per share hit $4.78, better than the $4.77 expected by analysts, as revenue totaled $2.8 billion, topping expectations for $2.79 billion.
But underneath the headline numbers, however, the firm gives us the real story on how investors are feeling right now and a few main trends stand out: people hate stocks, like bonds, and love “smart beta.”
BlackRock CEO Larry Fink said in the company’s release that it saw, “significant strength in fixed income and ‘smart-beta’ ETFs, as clients utilise these tools to manage risk and minimise volatility.”
That’s how much BlackRock’s client love smart beta: Larry Fink is talking about it.
Smart beta, you’ll recall, was Investopedia.com’s most searched term of 2015 and is a broad catch-all for investment strategies that weight indexes based on certain factors — say, by revenue, for example — instead of traditional market-cap weights.
And with headline stock indexes having gone basically nowhere over the last 18 months, these strategies have gained popularity as investors try to find ways to outperform.
In the second quarter, BlackRock reported net retail stock outflows of $4.9 billion. The firm said these outflows, “were primarily related to outflows from international equities driven by market uncertainty and de-risking.”
BlackRock’s iShares business — which covers its exchange-traded funds — saw equity inflows of $3.4 billion. So on balance, BlackRock clients moved out of stocks but when they did want to invest in equities they wanted that money managed passively (read: on the cheap).
The also firm noted that its iShares equity inflows were to its “Core Series” and “Minimum Volatility” funds. The low volatility strategy is more or less in the smart beta family.
On a firm-wide basis, $12.8 billion moved out of actively-managed strategies while $14.3 billion moved into index strategies and its iShares business, the continuation of a trend we’ve seen in markets for decades and doesn’t appear to be stopping anytime soon.
In its fixed income business, BlackRock saw $2.3 billion in inflows on the retail side and $10 billion in inflows in its iShares business. Bonds are good, it seems.
Also of note, BlackRock’s institutional clients that actively manage money (read: active mutual fund managers) saw $6.7 billion in long-term net outflows during the quarter. This is in-line with BlackRock’s firm-wide preference among its client base for passively managed investments. Expect more of this.