BlackRock promises selective fee cuts to capture growth

NEW YORK (Reuters) – BlackRock Inc (BLK.N), the world’s largest asset manager, on Tuesday said it would continue to reduce fees on a small group of its products with the highest growth potential, days after cutting fees on 11 exchange-traded funds.

FILE PHOTO: A woman walks next to a BlackRock sign pictured in the Manhattan borough of New York, October 11, 2015. REUTERS/Eduardo Munoz

Mark Wiedman, BlackRock’s global head of iShares and index investments, said at the company’s Investor Day that BlackRock is focused on areas where it can win or develop new markets and whose customers are most sensitive to price. The company’s ETF brand is called iShares.

The fee cuts on Friday most deeply affected products in the bond market, including an emerging-market bond exchange-traded fund and another one invested in municipal bonds. The company is locked in a tight battle for assets with, among others, the Vanguard Group, which is known for offering low-cost index funds. Together the companies collected more than 60 percent of the record $655 billion that moved into ETFs globally in 2017, according to Morningstar Inc.

BlackRock hopes to convert not just investors who are using index funds to replace stock and credit-picking managers but also institutional clients who might invest in individual bonds but prefer the convenience of a single trade.

“We see these as fast-growth areas and we want to capture that growth,” said Wiedman.

From 2012 to 2017, the average effective rate BlackRock charges across its assets dropped from $22.10 a year for every $10,000 under management to $19.10, according to BlackRock Chief Financial Officer Gary Shedlin.

But Shedlin said most of that decline came from changing product demand by clients, market movement and the effect of foreign-exchange conversion, areas the company does not control. All of BlackRock’s price cuts in that time period were offset by growth, he said.

They continue to spend roughly $1 billion a year on technology and will continue to aggressively put seed money into new products, which Shedlin described as one of the company’s best uses of cash.

Over time, investments in technology will result in more general and administrative expenses relative to revenue, but will likely be offset by relative declines in spending on compensation, boosting profit margins.

And the company’s dividends and buybacks continue as well, with the quarterly dividend rising nearly 9 percent to $3.13 a share, he said, pending approval by BlackRock’s board of directors and subject to market conditions.

The company reviewed its spending plans after a U.S. tax law passed last year, which sliced corporate and individual income rates.

Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Lisa Shumaker

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