BlackRock Inc. (BLK) - Get Report , the world's biggest asset manager, extended its dominance over U.S. rivals last quarter as investors poured money into the firm's iShares exchange-traded funds at a record pace, according to analysts at brokerage firm Jefferies.
The iShares ETFs drew in a record of about $76 billion in the second quarter, surpassing the previous quarterly high of $65 billion recorded during the first three months of the year, the Jefferies analysts estimated this week in a report. The ETF gains helped drive BlackRock's overall inflows to about $88.5 billion for the period; by comparison, the next-closest competitor, Alliance Bernstein LP (AB) - Get Report , attracted just $1 billion.
The disparity reflects just how quickly investors are shifting away from mutual funds and hedge funds run by active stock-pickers in favor of low-fee "passive" index funds and ETFs, which simply try to match the performance of the broader stock market or certain asset classes like bonds, commodities and currencies. In the past five years, New York-based BlackRock's assets under management have surged more than 50% to at least $5.4 trillion -- bigger than the U.S. Federal Reserve.
BlackRock "continues to be a beneficiary of the active-to-passive trend," the Jefferies analysts wrote.
Increasing numbers of investors have become disillusioned with stock pickers due to years of underperformance coupled with high fees. Star hedge-fund managers like Greenlight Capital's David Einhorn, Paulson & Co.'s John Paulson and Eton Park's Eric Mindich have faced redemptions this year as investors lost patience with their losing trading bets. Mindich decided to shut down Eton Park earlier this year.
Last year, some $323 billion flowed out of active mutual funds, while $218 billion flowed into passive mutual funds and $287 billion went into ETFs, according to Wells Fargo. In the second quarter, industrywide assets in ETFs climbed about 16% from a year earlier, while mutual funds reaped growth of just 1.9%.
BlackRock, led by longtime CEO Larry Fink, is scheduled to report its second-quarter results on Monday, July 17. The company's net income probably rose by 12% from a year earlier to $893 million, the Jefferies analysts estimated.
BlackRock's stock price, already up 16% so far this year, may climb another 27% in the next 12 months, according to analysts at the Swiss bank Credit Suisse.
"While demand for active equity mutual fund net flows remained weak," the analysts wrote in a July 7 report, "demand for both fixed-income mutual funds and ETFs was strong."
For the full 2017, BlackRock could attract some $280 billion in investor inflows, for a 5.9% organic growth rate, Jefferies estimated. That pace ranks second among a group of 12 publicly traded U.S. money managers; only WisdomTree Investments Inc. (WETF) - Get Report , another big ETF provider, is likely to grow faster, at 6.1%.
In the meantime, big money managers that specialize in active stock picking have been hemorrhaging funds. Franklin Resources Inc. (BEN) - Get Report is on track for about $32.4 billion of redemptions this year, while Waddell & Reed Financial Inc. (WDR) - Get Report could see $9.6 billion of outflows, according to Jefferies.