Displaying items by tag: Blackrock

(Boston)

The moment that many asset managers have been dreading has finally arrived. Fidelity announced yesterday that it was slashing prices on many of its funds, and crucially, offering two new index mutual funds with no fees and no minimums. Thus, the Rubicon has finally been crossed—the first broad index funds with zero fees, and no minimums. Many top asset management stocks fell considerably on the news. Remember that asset managers can still make money on funds with zero fees—through stock lending—but they need considerable scale to make that money meaningful.

FINSUM: It was only a matter of time before this happened. We expect Vanguard will follow suit quite soon, as will BlackRock, as lower fees have been by far the biggest selling point in the market for years.

(New York)

As fees fall, there is an inevitable reality in the US asset management industry—scale is everything. Investors need to deeply understand this concern if they have money in the sector. For instance, analysts and the market are putting so much preference on large managers, that one analyst just upgraded BlackRock to outperform, while downgrading Invesco and WisdomTree, even though BlackRock’s P/E ratio is 18.6, and the latter two’s are an average of just over 10. BlackRock’s stock is down 15% in the last year, while Invesco and WisdomTree have both fallen more than 30%.

FINSUM: The more fees need to be cut because of competition, the more money one needs under management to maintain profitability. Hence the battle for scale.

(New York)

Advisors will see it first hand, but it is still worth discussing the intensification of the current ETF price war. While the industry has been slashing fees for years, things have escalated significantly over the last few months. State Street has introduced a suite of ultra cheap funds, but more recently, BlackRock and Vanguard have made major moves. BlackRock cut fees on several stock and bond ETFs last month, and just last week, Vanguard announced that almost every ETF on its platform would be commission-free. The ETF market is supposed to grow to $10 tn in the next decade, and fees have fallen 30% in the last decade.

FINSUM: This is great news for investors, but it will certainly drive further consolidation in the ETF business as massive scale is needed to support these prices cuts. We ultimately worry about such imbalance in the market.

(New York)

Morgan Stanley has put out a unique list of stocks. The bank has published a piece outlining what it sees as the thirty best stocks for the medium term. The picks are based on having a sustainable competitive advantage and were viewed as having the best chance in this sideways-moving market. Some of the picks include: Accenture, Alphabet, BlackRock, BNY Mellon, Charles Schwab, Dollar General, JP Morgan, Microsoft, Salesforce.com.

FINSUM: This is a very interesting list, especially because it is cross-sector (which does not happen as much given the sector-first structure of equity research). It was also particularly useful that many of these names are in wealth or asset management, allowing advisors special insight.

(New York)

There is a lot of consternation in the market about the direction of equities. Some fear for returns as higher rates and the possibility of a recession become clearer. However, the world’s largest asset manager has just come forth with position that sticks with US equities. The best way to summarize BlackRock’s view is that it thinks “fears of peaking earnings are overdone”. The manager believes that worries over macro concerns have overshadowed very strong fundamental performance.

FINSUM: So the question is how much of the great earning performance was simply because of the tax cut, and how much came from an improvement in the underlying businesses. That is key to understand before predicting where the market is headed.