Wells Fargo & Co (WFC), BlackRock, Inc. (BLK): The Two Sectors Driving Growth in Financial Services

BlackRock, Inc. (NYSE:BLK) reported that 55% of its assets under management were tied to equity holdings, generating 56% of base fees. Based on the data from Greenwood and Scharfstein, we would expect BlackRock’s fundamental performance to track with the broader equity markets. However, BlackRock, Inc. (NYSE:BLK)’s opportunistic acquisition of Barclays Global Investor (a subsidiary of Barclays PLC (ADR) (NYSE:BCS)) in 2009 added $1.9 trillion to assets under management in Q4 of 2009, skewing a 1 to 1 comparison with the S&P.

The end result is BlackRock, Inc. (NYSE:BLK) appreciating 1,800% since 2000, versus 26% for the S&P.

BLK data by YCharts.

The trend is your friend, until it bends at the end
Only time will tell if consumer appetites for household credit will return to pre-crisis levels. Investors should watch the trend in household savings and consumer debt levels to see whether consumer behavior returns to pre-crisis patterns. If they do, look to consumer lenders like Wells Fargo & Co (NYSE:WFC) to lead growth in the financial services sector.

The opportunity is less clear with asset managers. Because assets under management and fees are so closely tied to equity market performance, a more direct play with a low-cost S&P index fund could be the better investment. However, with history as a guide, look to companies like BlackRock, Inc. (NYSE:BLK), who find growth through increasing market share to outperform the market and the sector. These companies could be the ticket to beating the S&P for the next 10 years.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Bank of America, BlackRock, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

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