So the Dow Jones Industrial Average Index hit 20,000 this week.
Big deal. For all the fanfare and hype, how many pundits could name all 30 stocks in the index?
But should they? After all, is the market really about stocks, or is it about indices?
Looking at the market, one would think that stocks are increasingly taking a backseat to indices. A prime example can be found in just the number of stocks in the U.S. market.
In the late 1990s, the total number of listed stocks was near 8,800. But as of the fourth quarter, that number had dropped by 63% to just 3,267.
Some 5,533 stocks are gone, meaning that investors from the biggest fund manager to the regular individual investor have thousands of fewer stocks from which to to pick in search of the next great opportunity.
Perhaps that is why so many institutions are wondering why they are spending so much money paying fund managers to run endowments, pensions and other funds.
Harvard University is a prime example.
This week, the university said that it is outsourcing its hedge fund management, despite having some impressive returns over the years. Citing the huge cost of paying managers including bonuses and other expenses, the school will hand over its billions of dollars to outside managers, many of which will be index-style.
And the California Public Employees Retirement System, one of the largest pension fund managers, is shifting to indices rather than its active and hedge fund management, citing cost savings.
The list is growing, and it shows in the markets. Last year, some $308 billion was pulled from active mutual funds, while some $375 billion was added to the rapidly expanding market for indices, principally in exchange-traded funds, and ETFs are growing in both number and size.
In 2005, there were 206 ETFs, but as of 2015, the number had swelled to 1,577.
Even Vanguard, the granddaddy of mutual fund companies, is suffering as it is moves rapidly to reduce even its index mutual funds while rolling out numerous ETFs in order to survive.
BlackRock is the biggest U.S. ETF management company, and it keeps getting bigger. The company has $5.1 trillion in assets under management.
Each of those dollars is important, because they form the base for fee income to run the funds.
When it comes specifically to ETFs, billions of dollars keep flowing into the company, including $88 billion in the fourth quarter alone.
But here is the real proof. For all the mania about indexing, BlackRock keeps outperforming the market.
Over the past five years, BlackRock shares have risen some 102%, while the S&P 500 gained 74% and the Dow industrials rose 58%.
So stock-picking can still pay off.
But BlackRock's shares have been falling, and it is a bargain. Some shareholders have been selling due to the concerns over ETFs.
Because ETFs have lower fees than active or other managed funds, BlackRock's revenue might not be expanding as much. Even given its 10.8% AUM growth, fees increased by just 0.4%.
BlackRock already has figured this out. It is further reducing costs because it doesn't need as much to run ETFs.
Layoffs will continue, and it is squeezing its custodians for cheaper fees including an announced deal to move $1 trillion from State Street to JPMorgan Chase.
Leaner and more aggressive will mean more ETFs, more ETF assets and better margins. These are all positives for BlackRock's stock.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.