Billionaire Dan Loeb is betting big on the world's largest asset manager
In a client letter dated July 26 explaining its stock investment, Third Point said: "We think BlackRock is a misunderstood franchise that is just beginning to inflect."
Here's an excerpt from the letter (emphasis added):
"We see BlackRock
as far more than an asset manager dependent on market movements. It is increasingly becoming a network or index-like business, with earnings power driven by ETFs (via iShares) and data & analytic services (via Aladdin). These are oligopoly businesses with faster growth and much higher incremental margins than traditional asset management - and thus deserve much higher P/E multiples over time. With shares at less than 15x our 2019 EPS forecast, and an outlook for consistent mid-teens EPS growth, we think BlackRock is a misunderstood franchise that is just beginning to inflect."
"...We think this acceleration in ETFs is just getting started, as regulatory change globally pushes lower-cost, transparent investment products, and institutional investors use ETFs as investment solutions, particularly in fixed income - an area where BlackRock has an even higher global market share for ETF products (~50%)."
That point on ETFs was echoed by BlackRock's CEO Larry Fink earlier this month.
"Index and ETFs still only represent 10% of the entire equity market global capitalization," Fink said Monday, July 17, on his firm's second quarterly call, referring to funds that passively track the markets. "With $160-odd trillion global equity market capitalization, we have much more opportunities for ETFs to grow, not just on equities, but in fixed income. And I believe this is just the beginning."
Third Point is up 10.7% for the first half of this year, according to the firm's client letter dated July 26. That compares to a 9.3% gain in the S&P 500 over the same period.
Third Point's offshore fund gained 4.6% in the second quarter compared to a 3.1% gain in the S&P 500, the letter said.
Here are some more excerpts from Third Point's letter:
- "In our January letter to investors, we shared our view that 2017 would be a year
characterized by reflation globally, an end to central bank easing, and a US economy juiced
up by the Trump administration's increased fiscal spending and tax reform. So far, none of
these predictions has come to pass." - "Looking ahead to the second half of the year, we still believe that central banks will be important drivers of action. While it might be too early to say that the key central banks have turned hawkish, their tone is changing and they are well past the point where any hiccup in the market will prompt increased accommodation. In the US, current weak levels of inflation and poor CPI and retail sales reports present a quandary for the Fed. Based on her recent remarks, Janet Yellen does not seem likely to advocate drastic action. However, we do believe that the Fed will begin balance sheet reduction shortly but that the next rate hike will be on hold until growth and inflation accelerate."