This has been a year that most investors would like to forget. It has been marred by high volatility across assets, driven by inflationary pressures, central banks aggressively raising interest rates, and geopolitical uncertainty.
Volatility has weighed on companies like BlackRock (BLK 1.33%), which makes money as its clients make money. Despite falling asset prices, BlackRock keeps soaking up Wall Street's cash and saw strong demand for its investment offerings in the third quarter. The asset manager has navigated a challenging market environment well and could be an excellent stock to buy on the dip.
It's a trusted investment advisor with thousands of products
BlackRock creates and manages investments for clients and is the world's largest money manager, with nearly $8 trillion in assets under management (AUM).
The company is perhaps best known for its exchange-traded funds (ETFs) through its iShares brand, which it bought from Barclays in 2009. That put it in a position to capitalize on the rising popularity of passive investing. BlackRock has over 1,000 ETFs worldwide, accounting for $2.6 billion of its total AUM.
BlackRock also has a robust business managing money for institutional clients, including pension funds, insurance companies, and endowments. It offers these clients passive index investments and actively manages funds. Institutional clients account for $3.8 billion in AUM.
Investors have flocked to BlackRock. Since 2008, its AUM has grown from $1.3 trillion to nearly $8 trillion, a growth rate of 14% annually even when accounting for its recent drop. This growth is crucial to BlackRock's business because it earns advisory fees, which are a percentage of its total AUM. As AUM grows, so do its earnings.
Data source: BlackRock 10-K filings. Chart by author. *2022 data is as of the third quarter.
The firm attracted investor money despite a challenging market
This year has been tough for most companies, BlackRock included. Its AUM peaked at $10 trillion in 2021 but have declined to just under $8 trillion since then, with falling asset prices being the primary culprit.
Investors keep piling into the company's investment products despite its falling AUM. In the third quarter, its ETFs saw over $22 billion of inflows, driven by increased demand for its bond ETFs. Institutional investors also poured in another $48 billion, mostly into BlackRock's actively managed investments.
One driver of these strong inflows is BlackRock's deal with American International Group to manage up to $150 billion of the insurer's assets as it spins off its AIG Life and Retirement business into a newly formed company. AIG entrusted BlackRock with its money because of its investment performance and Aladdin platform, which allows clients to measure and manage risks on public and private investments.
A recovery in the stock market will boost its advisory fees
Falling asset prices have brought its total revenue down 15% while its net income fell 16%. The fact that it is still seeing inflows is a positive for the business.
BlackRock will be in an excellent position when the market volatility recedes and asset prices recover. Rising asset prices will help boost its AUM, ultimately increasing the advisory fees it collects on those assets.
ETFs will be crucial to this growth. Last year, BlackRock told investors that global ETF AUM could grow from $8 trillion in 2020 to over $15 trillion in 2025, which would be a huge tailwind for its business. Couple that with strong institutional-investor demand for its products, and the company is in an excellent position to keep growing.
BlackRock is an excellent company near rock-bottom prices
BlackRock currently trades at a trailing price-to-earnings ratio of 15.8 and a price-to-sales ratio of about 4.7 -- both of which are below its 10-year average.
BLK PE ratio. Data by YCharts.
While we could see volatility in the market for a while longer, BlackRock is beginning to look like an excellent bargain at its current price and could be a stellar stock to buy on the dip today.
