While the banks made headlines for their big losses in 2020 and many fintechs made noise with massive gains, asset managers largely flew under the radar.
But there is one asset manager that should get your attention -- BlackRock (BLK 3.69%), the largest asset manager in the U.S. BlackRock's stock quietly returned 47% to shareholders in 2020 and is in a great position to continue its success this year and build upon its market-leading position.
BlackRock can boast roughly $8.6 trillion in assets under management, which is 17% higher than a year ago. In the fourth quarter, the firm had $127 billion flow into its funds, which was about the same as the same period the year before. The most popular funds were its iShares exchange-traded funds (ETFs), which had $78 billion in inflows in the quarter.
BlackRock is one of the pioneers in ETFs, having bought the iShares product line from Barclays Global Investors back in 2009. Since then, ETFs have taken off, becoming the fastest-growing investment vehicle in the world. In 2010, there were about 900 ETFs in the U.S., and today there are more than 2,000. In addition, ETFs held about $983 billion in assets 10 years ago; now they hold roughly $5 trillion in the U.S. and $7 trillion worldwide.
The opportunity with ETFs is only going to expand this decade. A recent study by analysts at Bank of America projected that worldwide ETF assets will skyrocket to $50 trillion by 2030. This puts BlackRock in a tremendous position to maintain its market lead in the asset management business. It has by far the most market share of ETFs, about 40% of the worldwide total, ahead of the privately held Vanguard at about 18%, and State Street at about 12%.
ETFs drove BlackRock's strong performance in the fourth quarter, as net income rose 19% to $1.5 billion, or $10.02 per share, while revenue increased 13% to $4.5 billion with investment advisory fees accounting for $3.4 billion of that revenue total. For all of 2020, net income jumped 10% to $4.9 billion while revenue rose 11% to $16.2 billion year over year.
Taking the lead on ESG
BlackRock plans to establish a leadership position in environmental, social, and governance (ESG) investing, another growing area of the asset management business. A recent report found that about 33% of the $51 trillion invested assets in the U.S. are invested using ESG criteria. That's up 42% from two years ago, and is expected to shoot even higher as climate change not only becomes a greater concern but is more widely embraced by governments and corporations. A survey released in December by BlackRock suggests that assets in ESG investments could double by 2025.
In a letter to CEOs published in January, BlackRock Chairman and CEO Larry Fink let it be known that his company is taking the lead in addressing climate change:
From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. I believe that this is the beginning of a long but rapidly accelerating transition -- one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.
The transition to a net zero emissions economy, which will take place between now and 2050, will impact all businesses. Those that don't make the transition will see their businesses suffer, Fink said. He made it very clear in the letter that BlackRock is going to be investing in companies that are making the transition to net zero emissions.
Given how central the energy transition will be to every company's growth prospects, we are asking companies to disclose a plan for how their business model will be compatible with a net zero economy -- that is, one where global warming is limited to well below 2 C, consistent with a global aspiration of net zero greenhouse gas emissions by 2050. We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.
For one of the world's largest investors to make this commitment will not only move markets and help transform industries, but it will also establish BlackRock as the leader in ESG investing.
BlackRock is a well-run, efficient company with a return on equity of about 15% and a profit margin of about a 30%. And with its perch at the forefront of these investing trends, BlackRock is in a great position to continue to lead the market and generate earnings. It should be on your radar as a stock to buy.