Investment-management giant BlackRock, Inc. (NYSE:BLK) has taken the investing world by storm, ever since its acquisition of the iShares business from Barclays gave it the most powerful exchange-traded fund franchise in the world. But as popular as its ETFs are, BlackRock stock might well be the best way to play the success of the multitrillion-dollar fund manager.
The simple rule for investing in money managers
The beauty of the investment-management business model is that companies like BlackRock, Inc. (NYSE:BLK) can make money regardless of how the market moves. With percentage fees coming based on assets under management, advancing markets definitely play a role in boosting profits. But unlike investors in ETFs, who have to deal with the very real prospect of outright losses, all that happens to BlackRock during tough times is that its revenue drops off. Even during the financial crisis, before BlackRock bought iShares, it was never in any danger of actually posting a net loss.
Moreover, during extremely bullish periods, investors tend to drive up shares of investment management companies. Take a look at how BlackRock, Inc. (NYSE:BLK) stock has performed over the past six months, compared to shares of its two largest ETFs, iShares Core S&P 500 and iShares MSCI Emerging Markets :
As you can see, investors in the once-hot emerging market sector have actually lost money recently, while U.S.-centered investors have done much better. But the performance of BlackRock, Inc. (NYSE:BLK)’s own shares has crushed both of its biggest ETFs.