The Irony of Blackrock
Blackrock (BLK), an investment management company, which offers a range of equity, fixed income, cash management, and alternative investment products, boasts an incredible three year annualized return of 46 percent as of 1/31/07 according to Morningstar. Moreover, the Street.com rates the company has one of the top ten fast growth stocks, indicating Wall Street is still very keen on the stock, despite the recent run-up in price. The streets optimism in Blackrock shares has so far been richly rewarded in 2007 as well. The company’s shares have, already, put in a 14.6 percent performance YTD, due in large part to Blackrock raising full year guidance for the year. The company now expects 2007 earnings of $7.25 to $7.55 per share on an adjusted basis. Given its dominate position in the alternative investments, fixed income, and risk management businesses, I expect BLK to continue to outperform the market and recommend this stock for those investors who have a long term time horizon. Unfortunately, for those investors banking on Blackrock mutual funds, I am not so optimistic. While shareholders in the company have reaped huge profits from the mutual fund side of Blackrock’s business, shareholders in the actual mutual funds have not done so well because of several factors. At this point, I would not recommend a single Blackrock fund to any investor. Outrageous expense ratios, front-end loads often exceeding five percent, and sub-par performance mark this company’s offering. Moreover, the company often steers its best investment management talent to its alternative asset business leaving mutual fund shareholders with those who could not cut it at the firm’s more prestigious hedge fund offerings and other exotic investment vehicles. Those investors, unlucky enough, to have invested assets in Blackrock funds should sell their holdings and seek better opportunities at a more shareholder friendly mutual fund establishment. Fidelity, Vanguard, Dodge and Cox, and Selected Funds instantly come to mind as solid recommendations.
5 comments:
Great article, there is more money in fund management than in the funds they manage. Any academic studies on this? Does this also apply to other fund managers like fidelity ?
I actually think Fidelity is a good outfit and Fidelity Diversified International (FDIVX) has been a long term holding of mine. I am not sure what the answer is to your other question regarding academic studies concluding investors are better off investing in fund management stocks versus the actual mutual funds. I know Jack Bogle (founder of Vanguard) recently wrote a book (I am not sure as to the title) criticizing the entire fund industry along the same lines that I critize Blackrock. That said, I do not think that all mutual funds are bad. Many are well run and have very low expenses. Furthermore, good mutual funds offer several key advantages to owning individual securities for those investors who are inexperienced or too busy to properly invest in individual securities.
The stock has been falling for the last 2 month, few a few cents to a dollar a day. Who is selling if it has such a good fundamental? I understand it was expensive at 160+, but it is now at mid 140s, the selling is not stopping. Are we missing something here?
I have watched BlackRock recklessly manage my portfolio and lead the market in losses and lag the market in gains. Heads up public, I wish I had run from these loosers.
I have watched BlackRock recklessly manage my portfolio and lead the market in losses and lag the market in gains. Heads up public, I wish I had run from these loosers.
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