BlackRock Inc.’s Chief Executive Larry Fink said most investors are under invested in the markets globally.
The world’s largest asset manager has seen clients put money to work by moving from cash to fixed income, Fink said in an interview on CNBC Tuesday after his company reported earnings.
'We’re seeing huge excitement in fixed income,” Fink said. But investors aren’t rushing into equities.
“We have a risk of a melt-up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work,” Fink, the head of the largest asset manager in the world, told CNBC.
“We have record amounts of money in cash. We still see outflows in retail in equities and in institutions,” he said.
“Many people thought we were going to be in a period of rising rates. We were not and we saw huge underinvestment and people had to rush into fixed income,” Fink said. “We have not seen that in equities yet,” Fink said.
Fink added that, with central banks being “more dovish than ever … there is a shortage of good assets” for investors, which could ignite the melt-up in the global equity market.
Fink spoke as BlackRock rebounded from a rocky end of last year, as customers jumped into its fixed-income products and showed interest in illiquid alternatives.
The world’s largest asset manager saw $65 billion in net inflows in the first quarter, the strongest total since 2017. The results Tuesday helped lift the New York-based company’s assets under management above $6 trillion again after a drop amid market turmoil at the end of 2018.
BlackRock saw clients put money to work, moving from cash to fixed income, Fink said in the interview on CNBC after the earnings report.
BlackRock’s fixed income products took in $80 billion in the first quarter, driving the company’s $59 billion in long-term net flows. Investors have shown renewed interest in bonds since the Federal Reserve officials signaled this year that an increase in rates is on hold. The pause came after many traders were instead positioning for a stretch of hikes.
The strength in BlackRock’s fixed income business and $6.8 billion in alternatives flows helped mute the impact of investors pulling $26 billion out of BlackRock’s equity products in the period.
Fink commented in the CNBC interview that investors haven’t rushed back into equities even as the stock market bounced back this year.
"There are huge pools of money sitting on the sidelines," Fink said on an earnings conference call later Tuesday.
BlackRock’s iShares division is the largest global issuer of exchange-traded funds and a key piece of its business.
The asset manager often points to fixed-income ETFs as a source of future growth for the industry. Its fixed-income exchange-traded products brought in $32 billion in the first quarter, offsetting $1.6 billion in outflows from its equity ETFs. iShares saw flows of $30.7 billion overall in the period, down from a record $81 billion in the fourth quarter.
BlackRock is recovering from 2018, when the firm saw its share price drop about 24 percent and confronted three straight quarters of institutional outflows. In the first quarter, the company reversed that trend and gathered institutional inflows of $29.1 billion.
BlackRock shares were up 2 percent on Tuesday at 10:11 a.m. in New York. It reported earnings per share of $6.61, beating estimates of $6.13 per share, according to analysts surveyed by Bloomberg. Revenue of $3.3 billion fell 7 percent from the same period a year earlier, and was in line with analyst estimates.
“We’ve had a significantly better market tone than we saw in the second half of the year,” said Gary Shedlin, the firm’s chief financial officer, in an interview. Quarterly net flows were driven by key businesses the company’s invested in, he said.
"We feel those investments are paying off," Shedlin added.
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