BlackRock (BLK 1.17%) recently reported another stellar quarter of earnings, with revenue in the period increasing 32% to $4.8 billion while net income was up 14% to $1.4 billion.
The investment management firm's solid report is no surprise to long-term investors, who have grown accustomed to high performance. BlackRock has crushed it for years and will likely continue to do so for three reasons: its dominance in the exchange traded fund (ETF) space with its iShares products, its shift toward environmental, social, and corporate governance (ESG) and sustainable investments options for investors, and a growing technology platform for portfolio and climate risk management.
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1. Its ETF products will continue to grow at an eye-popping rate
BlackRock is a leading provider of ETFs and index investment options for institutional and retail investors -- with its iShares products leading the way. The firm offers a wide range of ETFs, covering things including fixed income, sustainable funds, and factor investing styles such as momentum or value.
During its recent investor day, BlackRock announced it expects to see a generational shift that will propel further growth in the ETF space. Despite global ETF assets under management (AUM) of $8 trillion in 2020, the company says ETF penetration of the total equity and bond market is still low.
BlackRock projects ETF assets to nearly double to $15 trillion by 2025, and it's leading the charge. One area where institutional investors are turning toward ETFs is in the fixed-income space. AUM in 2018 in fixed-income ETFs was $428 billion, and in the first quarter this year it is $668 billion.
In the second quarter, the firm saw strong client demand for ETFs, with over half of net inflows here coming from fixed-income and sustainable ETFs. Total net inflows into ETFs were $75 billion in the quarter, and client assets in iShares ETFs passed the $3 trillion milestone. To put this in perspective, it took 15 years to grow iShares to $1 trillion in assets, five years to get to the next trillion, and two years to surpass $3 trillion.
2. ESG investments are growing in popularity -- and BlackRock leads the way
In the first half of the year, BlackRock saw $40 billion flow into sustainable ETFs, after seeing $46 billion in inflows for all of 2020. The firm touts $120 billion in sustainable ETFs, four times the size of the next sustainable ETF player, and it says demand is only accelerating. Active sustainable strategies saw $4 billion in inflows during the quarter.
BlackRock is a leading provider of sustainable ETFs, but in an effort to put sustainability at the center of portfolios it looks to bring enhanced climate risk models to investment managers. That's where its technology comes into play.
3. Investments in Aladdin and other technology help expand offerings
CEO Larry Fink says BlackRock's investment platform and portfolio construction expertise put the firm in solid position to meet its customers' changing needs, and it's all made possible by Aladdin, the company's investment and risk management technology offering. It gathers data from public markets and private markets, which allows investors to view their portfolios -- of both public and private assets -- on a single platform. This is the same technology BlackRock uses for its investments, and it's evolving to expand the company's climate offering, too.
The company has been developing Aladdin Climate, a technology solution for investors looking for climate risk analytics. The tool measures risks at the asset and portfolio levels and gauges the impact from physical risks like extreme weather, new technologies, and energy supply.
As part of this platform, BlackRock formed a partnership with Baringa to improve its climate analytics and risk management tools. The partnership will combine Baringa's climate transition risk models with Aladdin's financial and physical risk models to help investors customize their climate risk exposures.
A stellar long-term investment
BlackRock continues to lead the pack when it comes to portfolio solutions. The firm has done a splendid job of building out its iShares ETF offerings. It has also established itself as a leader in sustainable investment solutions to both institutional and retail clients, leveraging its technology platform in the process to drive continued growth.
The stock has outperformed the S&P 500 for a decade now, returning investors a total of roughly 500% versus the index's 300%, and there's no reason it can't continue to do so for the next decade. The company's strong growth history allows it to pay out an attractive dividend yield of 1.9% at Friday's prices, making it a solid option for income investors. Finally, BlackRock's ability to innovate and get ahead of clients' needs makes it a stellar long-term investment for any portfolio.
