July 16, 2018 / 11:06 AM / 3 months ago

BlackRock reports weaker demand for index funds, shares dip

NEW YORK (Reuters) - BlackRock Inc (BLK.N), the world’s biggest asset manager, reported smaller demand for its funds on Monday, and its stock dropped despite a better-than-expected quarterly profit.

FILE PHOTO: The BlackRock logo is seen outside of its offices in New York City, NY, U.S., October 17, 2016. REUTERS/Brendan McDermid/File Photo

Net income attributable to the company rose to $1.07 billion (806,526 pounds) in the second quarter, up more than 25 percent from $854 million a year earlier, as weaker, yet still positive, demand for index funds helped plump up margins and the company settled into a lower tax rate.

Yet the company wrestled with difficult market and industry trends during the quarter, including an industrywide slowdown in the demand for its hottest product, exchange-traded funds (ETFs) that track markets.

BlackRock’s iShares-branded ETFs took in $17.8 billion during the quarter, down from $34.6 billion in the first quarter. The company also cut fees on some ETFs to increase its market share.

“Investors have become accustomed to iShares consistently delivering outsized growth relative to peers,” said Edward D Jones & Co LP analyst Kyle Sanders, in a note.

“However, today’s results are a reminder that even BlackRock is not immune to jittery markets.”

BlackRock stock traded down 1.8 percent on Monday morning.

Yet even with the slower-than-usual growth in demand for the funds, which are relatively cheap to manage as they gain in size, revenue rose more than 10 percent to $2.9 billion from the prior year. Expenses grew 8.3 percent to $2.2 billion.

Operating income, a measure of profits after some expenses including employee pay, rose 16.4 percent to $1.4 billion in the quarter from the same period in 2017.

The company’s effective tax rate was 24 percent, down from more than 30 percent in the year-ago period, before a major U.S. tax cut was passed.

“The most important think we’ve been proving is the strength of our diversified business model,” which includes not just funds but also, increasingly, technology services, said BlackRock Chief Executive Larry Fink in an interview. He said BlackRock attracts money in whatever region or product category is generating interest at the moment.

On a per-share basis, BlackRock earned $6.62, compared with $5.20 a year earlier.

Excluding items, the company earned $6.66 per share, while analysts expected $6.55, according to Thomson Reuters I/B/E/S.

Strong earnings growth, particularly in the United States, was clouded during the quarter by rising tensions between America and its trading partners. Fink warned that it is unclear “where we’re going with trade,” adding that “you saw a lot of international investors pull out of the market because they’re questioning what does this all mean in regard to trade and globalisation.”

Fink told Bloomberg Television that markets could fall 10 to 15 percent if tariff wars are full-blown.

BlackRock ended the quarter with $6.29 trillion in assets under management, down from $6.32 trillion in the preceding quarter.

The company said it attracted total “long-term” net flows of $14.50 billion in the period. That figure excludes money-market funds where investors hold cash temporarily.

Reporting by Trevor Hunnicutt; Additional reporting by Diptendu Lahiri in Bengaluru; Editing by Jeffrey Benkoe and Nick Zieminski

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