BlackRock, Inc. (NYSE:BLK) reported Wednesday an adjusted net income of $838 million, or $4.96 per share for its second quarter, surpassing EPS expectations of $4.81. The beat comes on top of revenue growth of 5% year-over-year to $2.91 billion for the just-ended quarter, also beating estimates of $2.86 billion. While revenue, as well as operating income which grew 10% year-over-year to $1.25 billion, were the highlights of BlackRock, Inc.’s second quarter, expenses increased for the investment management firm. Total expense was reported to be $1.67 billion, up from $1.66 billion in the same quarter last year, while the company also reported a total non-operating expense of $41 million. Investment advisory, administration fees, and securities lending revenue increased to $2.53 billion from $2.43 billion in the year-ago quarter. Investment advisory performance fees also went up to $136 million from $115 million.
BlackRock, Inc. (NYSE:BLK) said that for the just-ended quarter, long-term net inflows were $10.8 billion in the Retail segment, comprised of $7.4 billion in domestic net inflows and $3.4 billion in international inflows. Fixed net income inflows were $9.8 billion. Furthermore, long-term net iShares inflows were $10.9 billion, the firm reported, which included $8.8 billion equity net inflows. BlackRock said demand for international developed markets exposures boosted iShares inflows. $4.4 billion in multi-asset net inflows increased long-term net inflows from institutional active clients, which was reported to have increased to $2.5 billion.
It appears hedge funds followed by Insider Monkey did not see BlackRock, Inc.’s second quarter beat coming. Total holdings of hedge funds which had long stakes in BlackRock, Inc. in the first quarter dropped 10.50% quarter-over-quarter to $456.83 million. This is despite the stock growing by 2.32% in the first three months of the year. It appears the smart money predicted the stock’s performance of late however, as the stock declined by 5.43% in the April to June quarter. Heading into the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. This means that those who were long in the stock reduced their overall investment in the firm, and appear right to have done so, even following the beat today, which has sent shares up by less than 1% and still down for the third quarter.
We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 140%, outperforming the S&P 500 ETF by 81 percentage points (see more details here).
Insider Monkey also follows insider transactions in companies such as BlackRock, Inc. to see whether executives inside these companies are confident in these firms’ shares. While there have been no purchases of shares by insiders this year, there have been several sales. The most recent sale was by Senior Managing Director Jeff Smith, who sold 350 shares on May 8. Chief Operating Officer Robert Goldstein sold 3,142 shares on February 9.
Considering all of this, we’re going to view the latest key hedge fund activity surrounding BlackRock, Inc.