Last month, we witnessed the failure of Signature Bank and SVB Financial's Silicon Valley Bank. The Federal Reserve introduced a Bank Term Funding Program to make depositors whole -- unfortunately with investors holding the bag as federal regulators seized the banks.
The failure of the banks had another effect: It made investors and risk managers rethink what they were doing. Bond investments have become more appealing to investors in the past year thanks to rising interest rates. Interest rates on government bonds have risen above levels not seen since 2007.
Investors have flocked into bonds and their related exchange-traded funds. One company that has benefited from these ripple effects is BlackRock (BLK 0.69%). Here's what investors learned when the asset manager reported earnings on April 14.
How BlackRock became the world's largest asset manger
BlackRock is the world's largest asset manager, with over $9 trillion in assets under management (AUM). Its key to success is its wide array of product offerings that clients can choose from to diversify their portfolios.
Data source: Sovereign Wealth Fund Institute. Chart by author.
It offers over 1,250 products globally, including its index and ETF products. These products span asset classes, including equities, fixed-income, and alternative assets. Its primary source of revenue is through investment advisory and fees, which are primarily based on a percentage of its total AUM.
The company also offers its Aladdin software, which provides investors with portfolio and risk analytics, giving them the tools to analyze and reallocate their portfolios.
Record inflows into its fixed-income products
BlackRock provides fixed-income products as part of its array of investment options. These product offerings include Treasury bonds, investment grade bond ETFs, and municipal bond ETFs. Last year, it saw a record $123 billion flow into these funds.
The strong inflows into bonds continued in the first quarter, with $34 billion flowing into its bond ETFs. Because of its wide range of ETFs, investors can access investment options to take advantage of changing market conditions. BlackRock has investments across the entire yield curve, which investors have used to manage risk and shift to safe-haven assets during this time of uncertainty.
Data source: BlackRock regulatory filings. Chart by author. 2023 data is through Q1.
BlackRock CEO Larry Fink told investors, "BlackRock ETFs once again proved their value as critically important tools for active management and in providing liquidity, transparency, and price discovery to clients during stressed markets." Fink went on to say that the recent volatility and stress in the banking market are the consequences of prolonged periods of aggressive federal and monetary policies coming to an end.
As a result, we have had a sharp rise in inflation and rapidly rising interest rates, which have caused dislocations and disruptions in capital markets. It is moments like this that "have been inflection points for BlackRock," Fink said.
An important piece in the asset management space
BlackRock is a massive player in capital markets because of its numerous investment products spread across asset classes and strategies. This, coupled with its Aladdin technology, makes it a key player in helping Wall Street's most prominent investors manage investment portfolios. Given its importance on the global investing stage, BlackRock is a solid stock that warrants consideration from long-term investors.
