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Why Investors Continue to Pay a Premium for BlackRock

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Buying at premium

BlackRock (BLK) continues to command a premium over industry peers as well as alternative asset managers, primarily due to its diversified strong performance across the regions and offerings. The company is now trading at a forward PE (price-to-earnings) ratio of 18.5x, compared with the industry average of 14.8x.

Overall, BlackRock’s valuations have risen in recent weeks, likely due to expectations of a strong performance in 3Q17 and inflows of assets across the Retail, iShares, and Institutional divisions, reflecting demand for active and passive strategies.

The company’s peers are trading at the following forward PE ratios:

  • T. Rowe Price (TROW): 16.3x
  • Bank of New York Mellon (BK): 13.9x
  • State Street (STT): 14.3x

Together, these companies make up 4.2% of the Vanguard Financials ETF (VFH).

In 3Q17, BlackRock witnessed sequentially lower but strong flows for iShares, similar flows for Retail, and higher flows for Institutional, with major deployment toward active debt strategies and passive equity offerings.

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Investment advisory performance

BlackRock’s investment advisory fees rose $246 million in 3Q17 on a YoY (year-over-year) basis to ~$2.8 billion—$117-million rise sequentially. Investment advisory performance fees rose by $133 million to $191 million, reflecting the strong performance of funds in active offerings.

BlackRock’s scientific active equity and active taxable fixed income businesses have performed 86% and 78% above the benchmark performance, respectively, over the past year. For the three-year period, these numbers stand at 89% and 78%, respectively.

The company’s fundamental equity has been 59% above the benchmark performance during the past year and 80% over the past three years.

BlackRock’s offerings, backed by technology solutions and diversified asset classes, have helped the company bring in new flows at lower costs and improving efficiency.

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