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BlackRock sees no slowdown in ETF growth amid heightened market volatility

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BlackRock sees no slowdown in ETF growth amid heightened market volatility

BlackRock Inc.'s exchange-traded fund business posted record net inflows during the fourth quarter of 2018, representing a bright spot in an otherwise tumultuous period for the company.

On Jan. 16, the world's largest asset manager reported that net inflows for its iShares business totaled $81.40 billion in the final three months of 2018. By comparison, net inflows for iShares were $54.80 billion a year earlier.

The growth in BlackRock's iShares unit came despite historic market volatility that weighed heavily on the asset manager's overall results. BlackRock's assets under management dipped to $5.976 trillion at the end of 2018, from $6.444 trillion as of Sept. 30, 2018, and $6.288 trillion, as of Dec. 31, 2017. Net income attributable to the company in the 2018 fourth quarter fell to $927 million from $2.30 billion a year earlier.

"The big surprise in the fourth quarter was in a very volatile negative marketplace. You're seeing portfolio reallocations being done out of mutual funds ... and into ETFs," BlackRock Chairman and CEO Larry Fink said Jan. 16 during a fourth-quarter 2018 earnings conference call. "More and more clients are choosing ETFs as the preferred investment vehicles because of their superior structure relative to the mutual fund industry."

Across Wall Street and Main Street, ETFs have expanded in popularity at rapid rates. While mutual funds have struggled to outperform broader market indexes, ETFs have provided investors with exposure to a variety of different securities bundled together to trade as a single asset that tends to beat most benchmark indexes.

While supporters of the relatively new asset class have faced questions over how ETFs will perform in periods of high market volatility, BlackRock President Robert Kapito believes the strength of the iShares business in the fourth quarter should answer those lingering concerns.

During the 2018 fourth quarter, BlackRock's iShares business saw net inflows of $60.51 billion into equity ETFs, $18.86 billion into fixed-income ETFs, $1.05 billion into alternative ETFs and $988 million into multi-asset ETFs.

The rising popularity behind ETFs will likely continue for the foreseeable future as the wealth management industry shifts toward models and portfolio construction versus focusing on individual stocks and products, BlackRock's Fink said.

"That trend is beginning," he said. "It wasn't something that was short in nature. We believe that will continue throughout 2019 and maybe '20, and this is one of the reasons why we continue to believe the ETF industry is going to continue to grow."