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Trump Administration’s Reforms to Benefit BlackRock and Industry

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Tax cuts

The US Senate recently passed the Tax Cuts and Jobs Act, which gives a tax break to corporates from 35.0% to 21.0%. This tax cut results in 8.0%–12.0% perpetual savings in tax outlays depending upon the effective tax rates. 

The companies would be able to generate higher operating cash flows and expect to see a one-time adjustment of valuations, which give them a substantial appreciation in market capitalization. BlackRock (BLK) had an adjusted tax rate of 31.3% in 4Q17, implying a 10.0% rise in earnings per share on the implementation of the bill.

Corporates with marginal or lower leverage can improve their shareholder payouts in the form of dividends and repurchases. Asset managers (VFH) can either increase their proprietary investments or reward the shareholders. 

State Street Advisors (STT), T. Rowe Price (TROW), and Wells Fargo (WFC), which have domestic exposure, tend to benefit more than their peers. The regulation would also allow for a competitive environment for manufacturers against producers from China and Southeast Asia.

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Interest rate outlook

Although the Federal Reserve is targeting three more rate hikes in 2018, it has provided some dovish views after its most recent rate hikes. We can expect a shift in portfolios toward debt and alternatives. BlackRock provides investment options across asset classes, so it tends to retain and add clients over time.

Through its fixed-income offerings in active and index funds, BlackRock managed assets worth ~$1.9 trillion on December 31, 2017, compared with ~$1.6 trillion during the previous year. 

BlackRock has assets worth ~$3.4 trillion in equity offerings, up from ~$2.7 trillion in the previous year. Fixed income offerings can see substantial traction as the interest rate increase cycle comes to a medium-term halt.

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