Asset managers‘ inflows are increasing, as investors add equity and alternative products to their portfolios, a shift from the preference for fixed income that has dominated the investment landscape over the past two years, says Gabelli Analyst Macrae Sykes.
“I expect inflows to increase relative to the last two years because of the improving economy and greater confidence by investors,” Sykes said. “I believe investors are focused on equity products and alternatives products that provide uncorrelated returns to the market. We’re also seeing a shift towards equity products with alternative returns attributions.”
Sykes says BlackRock (BLK) is his top pick among asset managers. BLK is uniquely positioned to benefit from increased institutional demand for alternatives, Sykes says, and it has numerous competitive advantages over its competitors.
“[BlackRock‘s] asset mix is changing positively due to AUM increases from the ETF and alternatives businesses, which have higher margins,” Sykes said. “So although aggregate firm AUM is growing at industry rates, the higher-margin businesses are growing faster and therefore will enable the firm to increase earnings. BlackRock generates significant free cash, which management is using to buy back shares and increase the dividend.”
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