BlackRock (BLK) , the world's largest investment manager, is revamping its stock-picking business in the U.S. as the division's new chief takes advantage of the firm's technological capabilities.
The new structure, announced in a statement Tuesday, will divide actively managed stock funds into four product groups that cover low- and high-risk investments, outcome-oriented portfolios and country- and industry-focused strategies. The firm is also introducing an Advantage lineup with nine mutual funds handled by its quantitative, or quant, team.
"Traditional methods of equity investing are being reshaped by massive advances in technology advances and data sciences," Mark Wiseman, the global head of active equities, who was hired from the Canada Pension Plan's investment board last year, said in the statement.
The timing of the shift was probably driven in part by Wiseman's six-month review of the business, Credit Suisse analyst Craig Siegenthaler said in a note to clients, and occurs as money managers' confidence in human stock-picking abilities dwindles, at least when it comes to large companies. Managers charging fees of 50 to 80 basis points of an investor's assets may need to cut them to compete, he wrote.
At BlackRock, executives concluded that several large-cap products overseen by managers making adjustments based on fundamental performance markers weren't likely to outperform benchmarks over the long term, and leveraging the firm's quant capabilities would enable more consistent returns for lower prices, Robert Lee, an analyst with brokerage Keefe, Bruyette & Woods, said in a note to clients.
"At the heart of BlackRock is a culture that embraces change and turns it into opportunity," CEO Larry Fink said in the statement. "We are constantly anticipating how macro trends will reshape both our industry and our clients' needs; we then pivot accordingly."
The repositioning will involve about $30 billion, or 11% of total active-equity assets under management, BlackRock said. Products managed outside the U.S. won't be affected.
The New York-based firm "appears to be taking a view that the future of active U.S. equities is in more systematic strategies and are aligning their product range where they think they can deliver," Michael Cyprys, a Morgan Stanley analyst, said in a note to clients.
"The focus/resources going forward will be around their scientific efforts and the integration of fundamental and scientific" strategies, he wrote, referring to the combined process as "quantamental."
BlackRock, which dropped 0.3% to $379.41 in New York trading on Wednesday, has still gained 12% in the past year.
The money manager said it will incur a charge of about $25 million this quarter for severance, compensation and other costs associated with the overhaul.
The short-term staff reductions will likely be countered over time by the hiring of more data scientists, quant professionals and junior talent, Morgan Stanley's Cyprys said.
This article, originally published at 11:08 p.m. on Tuesday, March 28, 2017, has been updated with market data and analyst commentary.