Black Rockthe world's largest asset manager has raised the bar when it comes to providing investors and advisors with the tools they need to build a properly diversified portfolio. Morning Star Senior Principal for Multi-Asset Strategy Evaluation Jason Keffertthe person who oversees BlackRock's parental ratings recently updated their company's stewardship practices ratings. Here he discusses what BlackRock is doing well, what can be improved, and how investors and advisors can make the most of what the company has to offer.
Susan Ziubinski: Talk about Jason widely about Morningstar's parents' ratings. what are they? And what do they tell investors?
Jason Keffert: Parent ratings represent how good an asset manager is for investors. This means lowering fees, making it reasonable, and attracting and retaining good investment talent when it comes to product launches. Parent ratings are also an input on how Morning Star medalist ratings are calculated at the fund level and the views of the fund's people and the pillars of the process.
dziubinski: How does Morningstar rate money managers when assigning parent ratings? What kind of things do you and your team look at?
Keffert: For a large company like BlackRock, you can imagine, it flips a lot of stones over. Some of the most important things we are looking for are stability in both fund manager and senior leadership positions, how well the funds are being delivered to investors, the type of products they launch or close, and how well the company is doing financially. If your company is dealing with consistent outflows from funds, it can be difficult to reinvest in your business and maintain talent.
dziubinski: What is the rating scale for Morningstar Parents?
Keffert: The best asset manager gets a high parent rating, while the worst ones lower their parent rating. Most fall into the average parent rating bucket.
How is Stewardship BlackRock evaluated?
dziubinski: We recently published a new parent rating report on BlackRock. In it, you say that BlackRock has raised the bar for the meaning of becoming a truly diverse asset manager. What does that mean?
Keffert: Looking at what BlackRock has done recently, particularly its acquisitions on the private investment side in 2024, there are no other companies that can rival the width of active products, passive products, liquid vehicles and semi-liquid vehicles. And now, non-liquid vehicles with the purchase of global infrastructure partners and HPS investment partners. There are no other asset managers on the planet that could truly match BlackRock's wide range of products.
dziubinski: Is there a risk that an acquisition will not add value to investors? What is BlackRock's record on the acquisition side?
Keffert: There is always a risk. Acquisitions can be challenging, especially when dealing with a successful culture that is about to merge. BlackRock has had many experiences in acquisitions and learned from what happened in the past. I think BlackRock will be the first to come back in 2008 and say that the acquisition of Barclays global investors, including Ishales, could have probably become smoother.
BlackRock, for example, keeps acquired private infrastructure and private credit companies in their own branding. Rather than enforcing global infrastructure partners under the BlackRock banner, it becomes “a part of the Global Infrastructure Partner, BlackRock.” It helps to keep people involved in motivating companies as they can maintain a part of their culture. Ultimately, all of these acquisition cultures mesh and encourage successful mergers that ultimately help investors, such as how people work together.
Which of BlackRock's handoff solutions is best?
dziubinski: BlackRock offers investment solutions for both practical and practical investors. How do other companies evaluate their handoff products when compared to handoff products they offer?
Keffert: We have extremely high confidence in BlackRock's handoff products. That bucket includes target date funds, asset allocation funds, and model portfolios. This helps financial advisors take investment management work away from the plate, whilst financial advisors drive successful outcomes from investors. The performance seen from the model portfolio team is TopNotch. There's a lot of confidence there.
We also believe that BlackRock's Target-Date series has the best products in the industry. If your 401(k) plan offers target dating managed by BlackRock, you're in a really good place.
How good is iSharesETF?
dziubinski: BlackRock has plenty to offer a suite of ISHARES ETFs to practical investors. Let's start with BlackRock's equity offering. Is there anything missing from the company's stock funds lineup?
Keffert: no. BlackRock offers everything in its entirety. Low-cost core building block stock and bond ETFs are excellent. There is also a fairly solid active management basic equity team. And that quantitative team has done some innovative things, especially with alternatives.
dziubinski: What about the diversity and quality BlackRock offers on the fixed income side of things?
Keffert: We also have a lot of confidence in BlackRock's fixed income feature. Rick Leader, Chief Investment Officer of Global Bonds, won the Morningstar Outstanding Portfolio Manager Award in 2023. He built a deep reviewed team on the active, fixed income side. I think BlackRock has many good products.
On the Muni-Bond side, we recently downgraded the people at BlackRock National Municipal Manlx to above average because we had a little more sales than we would like to see. We still like them, but our beliefs have diminished a bit. Team turnovers raise some questions about stability and what to expect in the future.
On the iShares side, there are low-cost options like the iShares Core US Aggregate Bond Etf Agg. This is a great starting point for any bond portfolio.
Read Morningstar's complete analyst report on AGG.
Active ETFs from BlackRock
dziubinski: Active ETFs are becoming more popular, and iShares ETFs are primarily passive products. Is BlackRock growing in an active ETF space?
Keffert: There is a lot of development there. Rick Leader has announced an active ETF for the fixed income side. ISHARES Flexible Income Active ETF BINC has grown to over $8 billion in assets since its launch in May 2023. It's clearly attracting the attention of many investors.
There was little interest in active ETFs on the equity side, but BlackRock launched several defined ETFs. I consider this to be an active strategy. In general, investors tend to misuse them, so when it comes to some of these complex, option-based strategies, it can sound untrue. Use these products correctly requires a lot of education.
BlackRock Leadership: Is Change imminent?
dziubinski: What about BlackRock's leadership, particularly succession plans surrounding CEOs Larry Fink and Rick Rieder? Are there any concerns from a Morningstar perspective?
Keffert: There's no need to worry. I think Larry Fink will be there for a few more years, considering all the recent acquisitions BlackRock has made on the alternative side. I think he'll want to see those acquisitions merge before he leaves. Investors probably have had almost several years of Larry Fink piloting the ship.
On the fixed income side, Rick Leader has a deep team. There are no immediate concerns about succession planning. But succession planning is always something to watch out for.
What can BlackRock improve?
dziubinski: BlackRock has earned above average parent ratings from MorningStar. Is the company doing better that it might push it to a high parent's reputation?
Keffert: There are many things that Black Rock is going well. But whenever there are many acquisitions, I want to see the dust settle before I change my opinion in any way.
On the Islands side, they are very aggressive in launching new products in the hot area. And it gives us some pauses. It's hard for me to catch up, and that's my job! Like the Ishares Bitcoin ETF IBIT, some of their “hot launches” work well. However, with a lot of “hot” product developments happening at BlackRock, we're a little more conservative about corporate parent evaluations.
Four Things You Need to Know if You're Investing in BlackRock
dziubinski: In summary, what is the important thing you need to know if an investor is currently investing in BlackRock or Ishares or is thinking about it?
Keffert: First off, BlackRock's multi-asset team is impressive. Whether you're a financial advisor looking for a model portfolio, or an individual investor looking for targeted date funds or classically balanced funds, I'll focus on BlackRock.
Also, if you're looking for a very low-cost core building block ETF that rivals what Vanguard and Schwab have to offer, iShares has something for you.
On the active, fixed income side, we have a great sense of confidence that BlackRock's team will deliver great results for investors.
We also look at future developments of semi-liquid and ilflowable alternative spaces. We hope to see more fund launches from BlackRock in the region.
