Daily Brief: BlackRock Posted Strong Earnings (And Revealed Where Their $9 Trillion’s Invested)

Daily Brief: BlackRock Posted Strong Earnings (And Revealed Where Their $9 Trillion’s Invested)

about 3 years ago3 mins

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BlackRock reported better-than-expected quarterly earnings on Thursday, as contentious elections and swift vaccines drove investors toward the world’s biggest investment manager.

What does this mean?

The more cash BlackRock looks after for its clients, the more money it earns in fees. And since it’s currently got its hands on a record $9 trillion pot, profits were high last quarter – higher than analysts had anticipated.

BlackRock extends earnings surprise streak

A lot of the money belonging to retail investors was poured into stocks, even as institutional investors diverted their money away from stocks and into bonds. Those different strategies could be down to diverging opinions on how expensive the assets were, if not diverging priorities: big institutions – like pension funds and insurance companies – probably leaned more toward the lower-but-safer income generated by bonds.

Why should I care?

Zooming in: Power play.

Most of the money BlackRock looks after is invested in low-fee exchange-traded funds (ETFs) – which passively track a group of stocks – rather than in higher-fee “actively managed” funds, which involve constant tinkering. ETFs have become so popular, in fact, that the three biggest ETF providers – BlackRock, Vanguard, and State Street – have become the biggest shareholders in almost 90% of US stocks. And since they get to vote on the company’s strategy on their clients’ behalf, they have an awful lot of power…

BlackRock extends its record share price run versus rivals

Zooming out: With great power comes great responsibility.

BlackRock mostly uses that dominant shareholder position for good, like when it promised late last year to support more climate change-focused proposals. It even pledged that it would sell most of its shares in fossil fuel producers – a move that was hailed as a victory by environmental activists. But there’s a caveat to being in the ETF business: BlackRock has to invest in a wholesale collection of stocks – like, say, a major index – rather than picking just the environmentally friendly ones. That might be why, despite its pledge, it’s still ended up holding $85 billion in coal investments…

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Investors Predict European Earnings To Fall 26%

Europe earnings image

European companies are about to report fourth-quarter earnings bruised yet again by the pandemic, and – wait, we’ve definitely been here before.

What does this mean?

Analysts are forecasting a 26% average drop in European companies’ earnings last quarter compared to the same period the year before. That’s a similar fall to the one investors saw in the third quarter, but look on the bright side: it’s not the 50% profit collapse that Europe’s firms suffered in the second quarter of 2020.

Y/Y Earnings & Revenue Growth Rate Estimates

Much like in the States, energy companies are expected to see the biggest drop in earnings. But three sectors which could actually be set to do well are metals and mining companies (i.e. “materials”), real estate companies (home prices, after all, are soaring), and utility firms, which tend to make money no matter which way the economy’s heading.

Why should I care?

For markets: The future is now.

It’s worth noting that analysts think European companies will start posting higher profits this quarter. And while investors won’t know for sure until those firms’ next earnings updates in a few months’ time, they’ve already pushed the stock market higher in anticipation that those analysts are right. Of course, that does raise the distinct possibility that stocks don’t have much higher to climb from here on out…

The bigger picture: Stop the steal.

While the US stock market outperformed the global stock market by 11% in 2020, it’s the other way round so far this year. That might come as vindication to investment bank Citigroup, which reckons there’s more money to be made outside the States in 2021 than inside the country this year: it’s advising clients to avoid America altogether and buy cheap-looking UK and emerging markets stocks instead.

Gauge of global stocks excluding the US is at its highest since 2008


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