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This Dominant Asset Manager Is Only Getting Stronger

Greggory Warren, CFA

With $6.3 trillion in total assets under management at the end of March 2018, BlackRock is the largest asset manager in the world, and we think it's well-positioned for the future.

At its core, BlackRock is a passive investor, with nearly two thirds of its managed assets in (and nearly half its annual revenue driven by) passive products. Its iShares platform, which is the leading domestic and global provider of ETFs, is riding a secular trend toward passively managed products that began more than two decades ago. As a result, BlackRock is currently generating solid organic growth with its operations, unlike many of its peers in asset management.

BlackRock earns a wide economic moat rating. The size and scale of its operations, the strength of its brands, and the diversity of its assets under management by asset class, distribution channel, and geographic reach provide it with a leg up over the competition. Unlike most of the other asset managers we cover, we continue to project margin expansion for BlackRock during the next five years.

We think BlackRock's moat trend is positive. Through iShares, the firm has a powerful tool for continued growth. We expect the ETF market overall to continue to grow organically at a 10% to 14% annual rate over the next five years, with BlackRock maintaining market leadership both domestically and on a global basis.

Moreover, we've been impressed by BlackRock's handling of the pricing situation with Vanguard and the other low-cost ETF providers. BlackRock has initiated price cuts gradually and only where necessary, with a commitment to attracting long-term investors. BlackRock captures the largest share of ETF inflows--both domestically and internationally. With the three largest players in the ETF industry holding sway over 82% of the domestic market (and 70% of the global market), we believe the market for passively managed ETFs has been sewn up.

BlackRock is trading at a slight discount to our fair value estimate, providing investors with an attractive entry point into a premier asset manager.