Updated Friday, October 24, 2014 as of 2:09 PM ET

BlackRock Net Income Rises as ETF Deposits Boost Assets

(Bloomberg) -- BlackRock Inc., the world’s biggest money manager, said fourth-quarter earnings increased 24 percent as its exchange-traded funds drew client deposits and assets rose.

Shares rose the most in almost six months. Net income climbed to $690 million, or $3.93 a share, from $555 million, or $3.05, a year earlier, the New York-based company said today in a statement. Profit beat the $3.71 a share average estimate of six analysts surveyed by Bloomberg. BlackRock increased its quarterly dividend 12 percent to $1.68 a share and expanded its share buyback program.

Chief Executive Officer Laurence D. Fink, 60, in August reorganized BlackRock’s senior leadership and product distribution to revive investor deposits, and in October created a series of lower-fee ETFs in a bid to reverse a decline in its U.S. market share. The moves, and a decision by Vanguard Group Inc. to change the index provider for its funds, helped increase ETF deposits. Index-linked products drove the $47 billion in deposits during the quarter, contributing to a 3.2 percent increase in assets to a record $3.79 trillion.

“It was a very strong quarter for ETFs,” Luke Montgomery, a research analyst who covers asset managers at Sanford C. Bernstein & Co. in New York, said in an interview. BlackRock has “the advantage of being a very diverse platform, so they can still generate earnings growth without growth in active equities.”

ETF Deposits

BlackRock’s shares rose 3.2 percent to $229.23 at 10:09 a.m. in New York, the most since July 27. The stock gained 19 percent in the 12 months through yesterday, compared with the 25 percent increase in the 20-member Standard & Poor’s index of asset managers and custody banks.

Investors continued to pull money from actively managed stock and bond funds. BlackRock’s active equity funds had $5.4 billion in withdrawals and investors pulled $374 million from active bond funds during the quarter. Stock ETFs drew $30.1 billion in new money during the quarter, gathering more than six times the money gathered by their bond counterparts.

“We’ll still see flows into high yield, flows into higher income types of fixed income,” Fink said in a telephone interview today. “I’m not trying to suggest people are running away from fixed income, but we are seeing a more fulsome look at investable products.”

Performance Fees

Performance fees, earned by funds for beating certain benchmarks, also boosted BlackRock’s earnings in the fourth quarter, rising 63 percent to $239 million. Investment advisory fees increased 12 percent to $2.1 billion.

BlackRock’s board approved an increase in share repurchases of an additional 7.5 million shares, bringing the firm’s purchasing capacity to 10.2 million shares. The firm bought back 868,500 shares in the quarter, bringing the total to almost 9.1 million shares repurchased in 2012.

In October, BlackRock created the iShares Core Series, which is made up of six ETFs with lowered fees and four new ones, to attract individual and institutional clients looking to invest over the long term. Earlier in the year, it combined the sales teams for iShares and BlackRock’s retail funds to increase market share.

“BlackRock remains a top pick in 2013,” Citigroup Inc. analysts led by William Katz wrote in a Jan. 4 research note. “We are encouraged around the solid organic growth as BlackRock’s iShares pricing strategy begins to build momentum.”

ETF Growth

ETFs have been the fastest-growing segment of the asset- management business, benefiting money managers such as BlackRock, Vanguard and State Street Corp. In the 12 months ended Nov. 30, ETF assets in the U.S. increased 24 percent to $1.3 trillion, compared with 11 percent for mutual funds, which hold $12.9 trillion, according to data from the Washington-based Investment Company Institute.

Fink, who co-founded BlackRock in 1988, said in October the U.S. is about a year away from having a more robust economy and has recommended investors put cash into equities as bond yields have shrunk to record lows.

BlackRock, which acquired Barclays Global Investors in December 2009, offers actively managed stock and bond funds, passive strategies, hedge funds and portfolios that use mathematical models. The company’s move into passive strategies came with the purchase of Barclays Plc’s San Francisco-based investment unit, which owned iShares, the world’s biggest provider of ETFs. Last week, BlackRock agreed to buy Credit Suisse Group AG’s ETF unit, which has $17.6 billion of client assets under management and 58 funds.

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