The US Federal Reserve recently tapped BlackRock to run the central bank’s plan to invest in so-called junk bond ETFs, a move that has raised eyebrows since BlackRock runs several large fixed-income funds that own high-yield corporate bonds.
But BlackRock is still seeing huge demand for its iShares family of ETFs, despite the market turmoil.
iShares ETFs are more popular than ever
“The ETF business continues to strengthen and is powering the whole company,” said Mac Sykes, an analyst with Gabelli Funds, which owns a small stake in BlackRock.
So BlackRock could emerge from this market pullback as a company that will be able to report even higher earnings per share since it will have fewer shares outstanding.
Socially conscious investing isn’t a fad
Still, BlackRock could also (somewhat controversially) wind up generating more fees from ETFs it caters to individual investors — particularly socially responsible ETFs that BlackRock CEO Larry Fink has championed over the years.
The shift to so-called ESG (environmental, social and corporate governance) funds might be about more than just doing the right thing.
“BlackRock’s ESG shift is really about generating more money for the firm. Pensions need to be focused on generating returns and BlackRock going this route undermines the low cost benefit of indexing,” said the Institute for Pension Fund Integrity in a report.
“Over time, BlackRock will look less like a low-fee, efficient index provider and more like a higher-fee forecaster of economic and social trends, with a bias toward stocks and bonds that meet its new ESG bias,” the firm added.
Still, BlackRock is latching on to a trend that has captured the minds of many socially conscious investors.
“Asset flows into ESG mutual funds and ETFs had been steady for much of the past five years before skyrocketing in 2019,” said Brian Price, head of investments for Commonwealth Financial Network, in a report.
“There was no watershed moment that caused this surge, but it did put the industry on notice. ESG investing had evolved into anything but a fad and appeared, in fact, to have become a permanent fixture in the investment management landscape,” Price added.
So even if investing in ESG is not just for altruistic purposes, it’s an undeniably savvy move that should benefit BlackRock.