While concerns have been raised over the past year about increased price competition in the market for exchange-traded funds, the 2009 merger with Barclays Global Investors transformed BlackRock (BLK), making the firm agnostic to shifts among asset classes and investment strategies and improving its assets under management, revenue, and profitability over the long run. The BGI deal was instrumental in making BlackRock the world's premier asset management company. Although admittedly late to combat the growth of Vanguard's ETF operations, BlackRock's move to cut pricing on some of its core funds should limit share losses and maintain the iShares brand. We still see growth in the retail channel as a big priority for the firm and expect iShares to be the spearhead for its now-integrated U.S. retail salesforce. Currently trading near our $290 fair value estimate and at a slight premium to our asset manager coverage overall, BlackRock's shares are slightly less attractive than in past periods, but they still represent a solid holding for long-term investors.

BlackRock Has the Widest Moat in Our Asset Manager Coverage

Asset managers tend to have economic moats, with switching costs and intangible assets being the most durable sources of their competitive advantage. And we believe BlackRock has the widest moat in this industry. With close to $4 trillion in total assets under management at the end of the first quarter, the company is the world's largest asset manager. BlackRock's product mix remains fairly diverse, with 51% of managed assets in equity strategies, 32% in fixed-income products, 7% in multi-asset class strategies, and 7% in money market funds (with the rest of its AUM invested in alternative investments and long-term portfolio liquidation strategies). Passive strategies make up more than half of BlackRock's managed assets, with index funds and ETFs dedicated to equities accounting for 43% of total AUM, fixed-income index funds and ETFs making up 15%, and a very small percentage coming from alternatives. BlackRock's product distribution continues to be weighted more heavily toward institutional clients, which we calculate account for more than 80% of the firm's total AUM. These assets tend to be far stickier than those garnered from retail investors, but can also be lumpier, as institutional investors tend to allocate large amounts of capital to their investment mandates. The company is also geographically diverse, with clients in more than 100 countries and close to 40% of its total AUM coming from investors outside the United States and Canada.