BlackRock has backed its active equity fund overhaul to come good as other areas of its business outperformed to drive it to record assets of almost $6 trillion.
In March the firm announced an overhaul of some of its active equity funds, moving away from human stock picking towards a more quantitative approach. As part of this plan it launched a new series of funds, called the Advantage range, made up of converted equity products and new offerings, all of which have a strong focus on data analytics.
BlackRock also segmented its wider active equity business into four lines: core alpha; high conviction alpha; outcome-oriented; and country and sector specialty.
Core alpha will initially consist of nine mutual funds, including those in the firm’s new Advantage series. All these funds will be run by BlackRock’s quantitative team.
BlackRock’s active funds took in $6 billion in the third quarter of 2017, but this was largely driven by fixed income products, which saw net inflows of $496 million, and multi-asset, which landed $3.47 billion.
Its active equity business suffered $3.3 billion of net outflows.
BlackRock chief executive Larry Fink backed this part of the business to return to form following the changes.
‘We believe the revitalization of our active equity platform this year will drive better client outcomes and future growth for BlackRock,’ he said on the firm’s earnings conference call. ‘We are seeing early signs of progress with 81% of fundamental and 90% of scientific active equity assets above our benchmark, or peer medians, now for three years.’
While investors’ flight to passive equity funds has hurt this part of BlackRock, it has been a huge boon its exchange-traded fund (ETF) unit iShares, which saw $52.3 billion in net inflows for the quarter.
Equity ETFs brought in $33.1 billion and fixed income ETFs took in $17.5 billion while commodity ETFs won $1.5 billion.
Fink said: ‘The investments we have made in iShares are showing real results. Usage is increasing across client types, from wealth clients seeking low cost exposures in fee based advisory models to insurers, asset managers, banks, pensions... using ETFs alongside stocks, bonds, futures and swaps as a necessary component of their portfolios.’
The strong iShares performance helped drive total flows for the quarter to $96 billion, and for the year so far to $264 billion.
BlackRock CIO Gary Shedlin said on the call that the group was exploring other fee structures for its funds too.
His comments come as Fidelity chief executive Abby Johnson called on the asset management industry to 'fundamentally rethink fees.'
The active equity overhaul saw fee cuts, with the new Advantage range offering lower prices than the funds it replace.
‘That [cost] was a big driver of our decision to reposition some of our active equity business and the launch of the low-cost advantage suite earlier in the year,’ said Shedlin.
‘As the landscape continues to evolve, we’ll continue to explore a variety of structures including fulcrum fees and other innovative structures to determine whether they are appropriate for our products and most importantly for clients.’
Fulcrum fees are performance-geared variable management fees which go up if the fund outperforms and drop when the fund underperforms.