The world’s largest asset manager, BlackRock Inc. (NYSE:BLK), has noted a significant shift in fixed-income markets. Investors are increasingly favoring low-cost exchange-traded funds (ETFs) and alternative assets over traditional bond funds, creating a “barbell effect,” according to CEO Larry Fink.
What Happened: Fink discussed the trend during the announcement of BlackRock’s new high of $10.6 trillion in assets under management. He pointed out the record inflows into BlackRock’s ETF products and a surge in client interest in infrastructure products that invest in energy and data centers, the Financial Times reported on Tuesday.
“Assets are in motion,” Fink stated, as investors with large cash reserves anticipate a U.S. rate cut as early as September and acknowledge missing a significant equity rally this year.
He noted that the split between passive index funds and high-fee private equity funds, already evident among equity investors, is now appearing in fixed income.
“It’s a moment when people are recalibrating out of cash and it’s going to be heavily into fixed income… ETFs and also the alternative income-oriented products,” Fink added.
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Why It Matters: The shift in investor preference aligns with recent trends observed among Generation Z and Millennial investors. These younger investors are increasingly turning to alternative investments, moving away from traditional stocks and bonds. This shift is likely contributing to the record inflows into BlackRock’s ETF products.
Moreover, market expectations for a higher neutral rate could limit the Federal Reserve’s ability to cut interest rates, potentially causing headwinds for bonds. This could further fuel the shift towards ETFs and alternative assets.
BlackRock, with its substantial iShares ETF business and pending acquisition of Global Infrastructure Partners, is well-positioned to capitalize on these trends, according to Fink. The acquisition is expected to close by the end of September.
The company reported a quarterly revenue of $4.81 billion, up 8% year on year, but slightly below the expected $4.84bn. Net income rose 9% from the previous year to $1.5 billion, surpassing expectations of $1.47 billion.
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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari