US trading volumes at BlackRock’s exchange-traded fund business, iShares , rose nearly 40% in the first quarter of this year from 2021 as investors used ETFs to quickly allocate capital and manage risk during periods of volatility.

Laurence Fink, chairman and chief executive of BlackRock, said in the asset manager’s first quarter results call that ETFs had $56bn of net inflows in the first quarter as clients increasingly use them to efficiently allocate capital, access liquidity and manage risk.

BlackRock generated a total $114bn of long-term net inflows in the first quarter, with positive flows across all product types, investment styles and regions taking total assets to $9.6 trillion.

Larry Fink shares his insights on BlackRock’s Q1 earnings results https://t.co/k7QXvPqffv pic.twitter.com/bkgvDpsXbG

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Gary Shedlin, chief financial officer at BlackRock, said on the results call that ETFs represented 7% annualised organic asset growth and 4% annualised organic base fee growth with particularly strong flows in core equity, sustainable and commodity ETFs.

He added: “As inflation expectations persisted, investors turned to our commodity ETFs and we are now the clear category leader.”

Fink continued that fixed income ETFs generated $8bn in net inflows in the first quarter, similar to equity ETFs. More investors are using fixed income ETFs to gain market exposure and for tactical positioning. There was demand for treasuries, short duration, inflation-linked, sustainable and municipal bond ETFs as well as broad-based market exposures which offset risk-off sentiments and areas such as high yield and emerging markets.

“The liquidity, transparency and lower transaction costs of fixed income ETFs present a more efficient way for investors to access the entire bond market,” he added. “We believe that our fixed income ETFs will benefit from long-term secular tailwinds that will play a significant role in the modernization of the $100 trillion bond market.”

Fink expects the yield curve to be inverted for some time and that investors will reposition their portfolios out of longer duration into shorter duration products.

“Portfolios are being navigated around fixed income as clients are re-evaluating where they should be across the yield curve,” he said. “We are not seeing any real panic at all in fixed income markets despite the worst performance in 30+ years in one quarter.”

Rob Kapito, president of BlackRock, said on the call there has also been huge investor demand for private credit and loans, and for real assets as an inflation hedge.

“Traditionally real assets like commodities, infrastructure and real estate will insulate a portfolio against higher inflation,” said Kapito. “We have seen some clients tactically allocate to commodities and we’ve had about $7bn of net inflows.”

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— Circle (@circlepay) April 12, 2022

Digital assets

Fink added that clients are increasingly interested in digital assets and the firm is studying the ecosystem including crypto assets, stablecoins, tokenization, and permissioned blockchains. “We see a potential benefit to our clients and capital markets more broadly,” he added.

Blackrock has made a minority investment in Circle, an internet payments firm and the sole issuer of the fully reserved stablecoin which Fink said is one of the fastest growing digital assets in the world.

“BlackRock is already the manager of the USDC cash reserves and we look forward to expanding our relationship,” added Fink.

Energy

Fink continued that one of the biggest investment opportunities in the years ahead will be the intersection of infrastructure and sustainability.

He believes energy shocks caused by the war in Ukraine has led to many countries looking for new sources of energy. Although production of traditional energy sources may increase in the near term, there will be an acceleration in the shift towards greener sources of energy over 30 to 50 years.

“We will see tremendous technological changes in the energy transition,” Fink added. “This presents a significant long-term opportunity for investments in infrastructure, renewable energy and cleantech on behalf of our clients.”

As a result BlackRock is building out three large infrastructure funds to meet these needs.

BlackRock has one of the largest renewable power platforms in the industry managing over $8 billion in assets and climate and client commitments according to Fink. The firm is investing in natural gas pipelines as an important transition fuel and to help countries shift from dark brown to lighter brown as BlackRock does not believe in divestment.

Fink expects client demand for sustainable investments to remain strong.

“We had $19bn of long-term net inflows into our active and index sustainable strategies in the first quarter,” he added. “Recent events have not really changed the long-term nature of ESG investing.”

Results

BlackRock reported a 7% increase in revenue year-over-year to $4.7bn, which it said was driven by strong organic growth. There was an 11% growth in technology services revenue, partially offset by lower performance fees.

Operating income increased 14% year-over-year and included the impact of $178 million of fund launch costs in the first quarter of 2021.

Diluted EPS rose 20% from a year ago which BlackRock said also reflects a lower effective tax rate and a lower diluted share count, partially offset by lower non operating income.