BlackRock expects “trillions” of fixed income investment with rising dividends

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BlackRock expected to increase investment in bond funds once the US Federal Reserve stopped raising interest rates as the money manager beat earnings expectations and assets under management returned to $9.4 trillion.

Investors flocked to money market funds to take advantage of rising interest rates – pushing the total in US MMFs above $5 trillion – but BlackRock said much of that crowd was poised to switch to fixed income once investors felt certain the returns would be good. You will not be harmed. More federal action.

“There is finally income to be made in the fixed income market and we expect demand to return,” said Rob Capito, Chief Operating Officer. “There are trillions . . . that are ready, when people feel rates have peaked, to flood the market and we need to position ourselves to capture that.”

While some analysts think the Fed may pause after another quarter-point increase at its July meeting, BlackRock and its CEO Larry Fink have repeatedly suggested that rates should stay higher for longer.

Global bond exchange-traded funds surpassed $2 trillion in assets this week, double their total just three years ago, and BlackRock predicted assets would triple to $6 trillion by 2030.

The New York-based conglomerate reported $1.4 billion in net income in the second quarter, up 27 percent from the same period last year, although overall revenue fell 1 percent year-on-year to $4.5 billion and decreased Operating income 0.3 percent.

Assets under management benefited as a handful of major technology stocks led to a recovery in the benchmark S&P 500 index, and net inflows in the quarter exceeded $80 billion, short of expectations of $92 billion. BlackRock cash management products generated $23 billion in inflows.

BlackRock’s soaring profits come as rival asset managers struggle with squeezed margins and increasing competition, and despite sustained attacks from US Republican politicians over what they claim is a “wake-up” approach to investing.

The group has sought to deflect criticism by emphasizing the breadth of its offering, from pointer trackers to alternatives. “Customers want more from BlackRock, not less,” Fink said. BlackRock shares were down 1.4 percent by mid-morning in New York.

BlackRock’s recent cost-cutting efforts have enabled it to claw its way back to an adjusted operating margin of 42 percent, roughly where it was in the second quarter of 2022.

“It was a good quarter and the long-term growth story remains intact,” said Michael Brown, an analyst at KBW, “despite the drop in revenue.”

BlackRock reported $9.06 in diluted earnings per share, up 28 percent year-over-year. The adjusted figure was $9.28, higher than the $8.41 expected by analysts polled by Bloomberg.

Revenue from the group’s Aladdin risk management system and other technology services rose 8 percent year-on-year to $359 million, above analyst expectations. The company said at Investor Day last month that two-thirds of its 25 largest customers have given BlackRock a larger share of their spending over the past five years.

“They’ve built a better mousetrap in terms of having better technology and options across all asset classes,” said Kyle Sanders, equity analyst at Edward Jones. “Most asset managers are shrinking and BlackRock is growing.”

T Row Price Thursday reported net outflows of $20 billion for the quarter, though assets under management rose to $1.4 trillion due to rallying markets.