BlackRock, Inc. (NYSE:BLK),an investment management firm, has been doing exceptionally well for some time. Its stock has been outperforming the market every year. Even this year, the stock has risen around 33%, compared to gain of more than 13% in the S&P 500 index. If you had invested in BlackRock, Inc. (NYSE:BLK) in July 2012, you would have gotten more than 61% returns until now, just because of the price appreciation. The company also increased its dividend during the period, further enhancing the total returns. So what is pushing BlackRock, Inc. (NYSE:BLK) shares higher? Let’s find out.
Rally in equity markets benefiting the asset management industry
In the first half of 2012, the global financial market came under significant pressure due to the Euro zone debt crisis, slowdown in China, and the U.S. fiscal cliff issue. The asset management industry faced an uncertain outlook as investors pulled money out of risky assets.
However, investor confidence was boosted by a number of positive developments, starting in the summer of 2012. In July 2012, speaking at an investment conference in London, European Central Bank (ECB) President, Mario Draghi, said, “Within its mandate, the ECB is ready to do whatever it takes to preserve the Euro. And believe me, it will be enough.”
Draghi’s comments were enough to ease concerns over the Euro zone debt crisis. Since then, there have been occasional jitters (Cyprus banking crisis, political crisis in Italy), however, the worst of the Euro zone debt crisis is probably over.
This has helped risky assets, especially equities. Investor confidence has also been boosted by the passage of the fiscal cliff deal earlier this year. Meanwhile, the economic outlook has also been improving. Just last week, the Labor Department reported that the U.S. economy added 165,000 jobs in April, beating the consensus forecast of 135,000 job additions.
In addition to these positive developments, another major reason behind the rally in risk assets is ultra-loose monetary policy from central banks in the developed world. The rally in equities has lifted market sentiment. Last Friday, the Dow Jones and the S&P 500 jumped to record high levels in intraday trading. With more and more investors pouring money into equity markets, it is not surprising that the asset management industry is having an excellent run. In fact, BlackRock, Inc. (NYSE:BLK) is not the only asset management company that has benefited from the rally.
State Street Corporation (NYSE:STT), another major asset management firm, has been following the same trend as BlackRock, Inc. (NYSE:BLK), moving up since July 2012. Since then, State Street Corporation (NYSE:STT) has given investors a return of nearly 27%. Although impressive, this is significantly below BlackRock’s performance in the same period. Also, State Street’s dividend yield of around 1.70% is below BlackRock’s and the industry average. This suggests that State Street Corporation (NYSE:STT) may have limited upside potential from current levels.
Another company that has been benefiting from the recent trend is UBS AG (NYSE:UBS). Although UBS AG (NYSE:UBS) is a diversified firm, in recent years, the Switzerland-based bank has increased its focus on wealth management business. The strategy seems to be working, as highlighted by UBS AG (NYSE:UBS)’s quarterly results. USB’s stock was on an upward trend since July 2012, gaining more than 52%.
BlackRock’s strong fundamentals
Apart from the macro factors, BlackRock, Inc. (NYSE:BLK)’s rally can also be attributed to the company’s strong fundamentals.
One of the reasons for BlackRock’s stock price appreciation has been exceptional growth in its financial performance over the last five years. While the investment management’s revenue has increased with a CAGR of around 16%, its net income has increased with a CAGR of more than 40%. This is a clear indication that the company has been operating with a high profit margin.
The company currently has more than $3.9 trillion in assets under management (AUM). It has seen an increase at a CAGR of 22.82% in the last five years. The equity asset class had the highest CAGR of 38% over the same period. It has also recently seen a phenomenal growth in its iShares ETF offerings. This growth in AUM has been achieved due to a number of reasons, and some of these factors were net market valuation gains and net new business and acquisitions.