Exchange-traded funds (ETFs) and fixed income loom as next-level growth engines for BlackRock, Larry Fink told investors in his annual chairman’s letter last week.
The novella-length Fink-piece namechecks ETFs as one of the key drivers of the BlackRock global expansion strategy following a restructure last year that put the product template at the heart of the US$10 trillion machine.
“We always viewed ETFs as a technology, a technology that facilitated investing. And just as our Aladdin technology has become core to asset management, so too have ETFs,” he says in the letter.
“That’s why we believe embedding our ETF and Index expertise across the entire firm will accelerate the growth of iShares and every investment strategy at BlackRock.”
According to Fink, the “global ETF adoption” is about to take-off as US-pioneered trends such as fee-based advice and model portfolios spread across other jurisdictions.
“Nearly half of 2023 iShares net inflows were from our ETFs listed internationally in local markets, led by European iShares net inflows of $70 billion,” he says.
Fixed income is also on track to grow as entrenched higher interest rates create a more attractive baseline yield for the asset class with investment flows to follow.
“Active asset allocation, security selection and risk management have consistently been key elements in long-term returns. Our active teams across multi-asset, fixed income and equities are well-positioned to seize on broad opportunities arising out of this new interest rate and potentially more volatile regime,” Fink says. “We are particularly excited about the opportunity in fixed income and how artificial intelligence is propelling performance in our systematic investing businesses.”
He told investors the firm, the world’s largest fund manager, was also primed for growth via private assets, particularly energy transition infrastructure. The business bought the US$100 billion plus Global Infrastructure Partners manager earlier this year for US$3 billion and 12 million BlackRock shares (for a combined price of about US$4 billion based on the latest stock value).
After the market slump in 2022, BlackRock reclaimed the US$10 trillion peak, first hit late in 2021, last year on the back of surging asset valuations and net flows of US$289 billion.
“And over the past few months, we’ve seen a decidedly more positive sentiment and tone in markets and among clients that I’m very optimistic will carry into the rest of 2024,” Fink says.
However, the BlackRock bigwig is less sanguine about broader social issues, notably the retirement challenge in an aging global population.
Retirement, Fink says, “is a much harder proposition than it was 30 years ago”.
“And it’ll be a much harder proposition 30 years from now. People are living longer lives. They’ll need more money. The capital markets can provide it — so long as governments and companies help people invest,” he says.
“… It’s no wonder younger generations, Millennials and Gen Z, are so economically anxious. They believe my generation — the Baby Boomers — have focused on their own financial well-being to the detriment of who comes next. And in the case of retirement, they’re right.”
Defined contribution retirement savings systems, such as KiwiSaver, he says may have accumulated significant assets but retirees today feel less secure than previous defined benefit pension fund members.
BlackRock will launch an retirement income stream product in the US next month branded ‘LifePath Paycheck’.
“I believe it will one day be the most used investment strategy in defined contribution plans,” Fink says.
Other big-picture items on the BlackRock chief’s mind include the potentially explosive US government debt, the need for “strong capital markets” everywhere to fuel growth and the fact that young Americans today are 50 per cent “more likely to question whether life has a purpose” compared to 20 years ago.
“I’ve been working in finance for almost 50 years. I’ve seen a lot of numbers,” he says. “But no single data point has ever concerned me more than this one.”
Here’s another data point: the 2024 Fink letter serves up investors more than 12,700 words.