It's no secret that 2022 has been a tough year across investment classes, with the S&P 500 index down 18% while the Nasdaq Composite index is down 26%. Now that earnings season is in full swing, investors can see just how much volatile markets have impacted different businesses.
One company that reported earnings last week was the global asset manager, BlackRock (BLK 1.35%). The second quarter weighed on the company's investments, and earnings fell as a result. Still, investors have reason to be optimistic as the firm saw robust demand for its products despite falling asset prices.
How the world's largest asset manager performed in "an investment environment not seen in decades"
BlackRock manages investments for clients around the globe, and its $8.5 trillion in assets under management (AUM) makes it the world's largest asset manager, ahead of Vanguard Group, UBS Group, and Fidelity Investments. The firm provides clients with various investment options, including mutual funds and trust funds, but it's best known for its exchange-traded funds (ETFs) through its iShares brand.
During the firm's second-quarter earnings call, Laurence Fink, chairman and chief executive officer, said that "the first half of 2022 brought an investment environment that we have not seen in decades." Fink mentioned how investors are weighing high inflation, rising interest rates, and the worst start for stocks and bonds in 50 years.
BlackRock saw revenue decrease by 6% during the quarter, while its diluted earnings per share (EPS) fell by 21%. The firm saw investment advisory revenue fall while its AUM dropped 11% from last year to $8.5 trillion. However, despite the rocky market environment, the firm saw net inflows of $90 billion into its investment products, with $79 billion flowing into its index and ETF products.
Investor demand for passive investment is strong
Passive investing has grown in popularity over the last decade, and BlackRock is one of the firms leading the charge. From 2011 through 2021, BlackRock has seen its AUM nearly triple, growing at a compound annual growth rate of 11%.
Lower costs and the ability to target specific investment profiles attract investors to BlackRock's passive investments. For example, BlackRock has ETFs that allow investors to generate passive investments for dividend and interest income, maximize the growth of their investment, or make sustainable investments through its environment, social, and governance (ESG) products.
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During the company's investor day last year, the company discussed a generational shift to propel further growth in ETFs. Global ETF AUM was $8 trillion in 2020, but BlackRock thinks ETF penetration of the total equity and bond markets is still low and projects this AUM to grow to $15 trillion by 2025.
Investor takeaway
BlackRock leads the pack regarding investment solutions and has excelled at building out its iShares and other ETF products to capitalize on investors' shift to passive investments. The firm has rewarded investors over the last decade, delivering total returns of 338% versus the S&P 500's total return of 242% in the same period.
Market volatility has weighed on the business, causing its AUM to drop $1.5 trillion from its high-water market of $10 trillion at the end of last year, and the stock is down 32% year to date. Despite this, BlackRock remains on solid footing as the top asset manager in the world thanks to the variety of its investment products. And high demand for these products from investors is an excellent sign of the company's continuing growth.
