Source: Holger Zschaepitz @Schuldensuehner
Wow. Completely missed the 34 percent flop in Blackrock, the world’s most massive shadow bank, from its $594.52 January high. Now trading through the key $400 level, with the next significant support to the downside at $380. Thanks to Holger for bringing it to our attention.
It looks like it’s all about institutional outflows and diminishing marginal inflows caused by, what Larry and Rob call de-risking, and mainly by the hedge funds.
Sure not seeing the de-risking it in the 10-year Treasury yield, which is another story, and why this year’s two equity corrections/sell-offs are different. , in spite of a persistent massive short position by specs in the 10-year note futures
Source: October 15 earnings release
Key comments from the conference call
[Operator Instructions] Our first question comes from Dan Fannon with Jefferies.
Thanks. Good morning.
Laurence D. Fink
I guess, Larry, could you elaborate on your broader comments about de-risking? It seems based on your commentary that we — it should likely continue here in the short-term and we’re seeing it through your index products. So I guess are there other kind of asset classes we — that you’re seeing that in? And then also, is there a capture rate where you’re seeing flows going into other categories that are obviously less risky?
Laurence D. Fink
I will let Rob talk about it and then I will add to it after him.
Robert S. Kapito
So I think, Larry, mentioned increased trade tensions, emerging markets volatility, and certainly the fear of continued interest rate rises across the globe. So what happens, especially during that type of volatility period is clients de-risk. So depending upon the next couple weeks and some of the political issues as well and the volatility that’s out there, clients may continue to de-risk. Certainly, we’ve seen the hedge funds de-risk from a period of time where I think across the board most of them are already down 2% 4%, so getting below that is difficult for many hedge funds, so they’ve just risked — de-risked. And we also, depending upon the guidelines of the clients and what we think about the markets, we encourage either de-risking or risking depending upon what their objectives are. The goal for us is even in that de-risking, to capture those assets because whatever they’re selling and going into, we have that product. So whether clients move from equity to fixed, we can accomplish that. Whether they’re going from value to growth, long duration to short duration, out of emerging markets into emerged markets, our goal is to offer a holistic solution so that they can de-risk and then be ready to put the risk on with us as well. And that also moves from product to product, whether they do it in iShares, and typically they’ll do that in the non-core iShares that have the most liquidity. Clients in the core iShares do that less because they’re more buy-and-hold. So, we see that more in the active products, and I think that really describes a lot of the flows this quarter.
Laurence D. Fink
Let me just add a little more. I think the market movements post third quarter was, as Rob said, more hedge funds de-risking. We did not see any accelerated outflows in the first few weeks. I think, Dan, when you think about some of these big large strategic partnerships we announced, none of that was asset flows this quarter. All of this is going to be huge asset flows probably in 2019. And this is why we are spending so much time trying to develop these deeper relationships. We are not going to be able to predict or strive for any one quarter, but I do — we’re very excited about the opportunities of building these deeper relationships that over time are going to really push us towards a much higher growth rate. That being said, if the markets remain to be uncertain, if political risk remains large, you will continue to see clients pause. We’ve seen this in the past. Generally, in the fourth quarter, we see clients adding risk that is typically what happens especially November, December. We — and so, I’m not here to tell you, I know how this will all play out, but we are continuing to see large interest from our clients in our technology businesses, we’re continuing to see large interest from our clients in our alternative space and let me also talk about the breadth of our active business for a second. We had positive active flows in fixed, in multi-asset, and in alts. The only area where we had outflows that were significant was in the low-fee index products, and that I think, Rob Kapito has talked about this for years, that’s where we see how people navigate money. They go in and out of index funds in large-scale as an indicator of their market beliefs. So — and I would also say unlike most organizations in the industry we had positive flows in U.S wealth in our retail side. So I don’t know the outcome of this quarter or political uncertainty, but all I could say is we’re — we have very strong conversations going on right now with really important clients and we will see how that plays out.