By Trevor Hunnicutt and Diptendu Lahiri
BlackRock Inc is closing in on an industry-record $6 trillion in assets under management as investors storm into the company's index funds and the bull market in U.S. stocks rages on.
The world's biggest asset manager reported an 8.2 percent rise in quarterly profit on Wednesday, beating Wall Street estimates on almost every count as it attracted $96 billion, with about half of that moving into relatively low-cost exchange-traded funds.
None of BlackRock's publicly traded peers are expected to have gathered even 10 percent of that amount in the same quarter and four in 10 will report outflows, according to Morgan Stanley.
The increase in assets under management to $5.98 trillion, a figure on par with Japan's gross domestic product, along with strong investment performance boosted revenue by 14 percent.
That marked the first time since the fourth quarter of 2015 that the company's sales beat analysts' expectations, according to Thomson Reuters I/B/E/S.
"It's a great company," said Cathy Seifert, equity analyst at CFRA Research. "It's well managed. I think they're moving in the right direction."
The stock rose 1.81 percent on Wednesday. Shares have returned nearly 27 percent this year, including dividends.
Index-tracking ETFs have gained popularity among investors in recent years and are responsible for the lion's share of the hundreds of billions in cash that BlackRock pulls in annually. But they have also drained assets away from traditional stockpickers who typically charge higher fees.
BlackRock's third-quarter profit spiked to $947 million from $875 million a year earlier. Excluding items, the company earned $5.92 per share, topping analyst expectations of $5.56, according to I/B/E/S.
Active funds overall took in $5.8 billion for BlackRock during the quarter, and helped the company book more fees for beating performance targets. Such fees rose by $133 million to $191 million from a year ago.
BlackRock said in March it would cut fees, change portfolio managers and rely more on data crunching for a number of equity products.
By BlackRock's reckoning, more than eight in 10 client dollars across its actively managed stock funds are in products beating their benchmarks over three years. The figure is improved from a year ago.
Still, active funds specializing in stocks posted outflows that topped $3 billion for the quarter.
Some of the withdrawals were expected following the March revamp, Chief Executive Larry Fink said in an interview.
"I would not expect to see any major reversal in active equities until some time next year," Fink said.
BlackRock Chief Financial Officer Gary Shedlin said on a conference call with analysts that pricing structures are always under review, and that BlackRock could consider implementing so-called fulcrum fees that reflect changes in performance.
Fund managers' stockpicking performance generally has picked up but that is not yet reflected in sales, analyst Jeremy Campbell with Barclays plc said.
"You should see it inflect at some point, the question is just how much of a lag is there," he said.
(Reporting by Trevor Hunnicutt in New York and Diptendu Lahiri in Bengaluru; Editing by Jeffrey Benkoe and Meredith Mazzilli)