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BlackRock bets on robots to improve Its stock picking

30 March 2017

Active stock managers in the United States have been smacked with withdrawals in recent years as investors increasingly fled to lower-cost products, including index-tracking ETFs, some of which charge as little as $3 annually for every $10,000 they manage, while the average charged by US stock mutual fund managers is $131, according to data for 2015 from the Investment Company Institute trade group. "These changes should help cut costs and allow BlackRock to be more competitive on price". It's also planning to roll out nine new mutual funds managed by its quantitative investment team. As a result, more than 40 employees will be laid off, including portfolio managers. Two other groups of funds - one that will make higher risk, concentrated bets and another focusing on specific countries and sectors - round out the reorganization.

Planned fee cuts on that group of funds and its "Income" products will slice about US$30 million of BlackRock's revenue, and the company will take a US$25 million charge this quarter to reflect severance and other compensation expenses.

"We can more efficiently deliver alpha at a better cost with automated processes", Mr. Wiseman said. The firm hired Doug Chow, a former portfolio manager at Fidelity Investments, to run an integration and data platform.

"The active equity industry needs to change". This compares with the industry average of 5.3 percent and 8.8 percent. Fink said in 2014 that he'd spent "hundreds of millions of dollars rebooting" the business.

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The executive behind the overhaul is Mark Wiseman, the former CEO of the Canada Pension Plan Investment Board, who was hired past year to turn around the stock-picking business.

So to combat their woes, BlackRock is shifting to quantitative strategies like many fundamental hedge funds are. BlackRock says its quant offerings on average have beaten 43% of their benchmarks or a peer-group median over the past year, and 91% in the past five years.

As IBD reported on February 10, BlackRock had the industry's second largest mutual fund-ETF combined net inflow in 2016, with the BlackRock/iShares complex drawing $99.431 billion, according to Morningstar Inc. Meanwhile, the firm's ETF business has been booming, with record inflows a year ago.

BlackRock bets on robots to improve Its stock picking