Scherbaum’s stock exchange: The good bad guys of the financial world

WIf you look at the shareholders of the most important German companies, you will find one name particularly common – Blackrock. In this country, the American asset manager not only gained notoriety because he is involved in all 40 Dax companies, but also because the current CDU boss Friedrich Merz was the head of the supervisory board of Blackrock’s Germany representation for a long time.

However, the New York-based group is not only in the spotlight around the world because of its proximity to some politicians. The wealth manager is one of the most powerful players in the financial world. Blackrock manages money from sovereign wealth funds, insurers, foundations, pension funds or banks. Private investors also come into contact with it – for example via the Blackrock ETF arm iShares or the Blackrock share itself. Many voices critical of the financial market often see Blackrock as a giant octopus, which due to its size and the potential upheavals that may result from it the markets, could be dangerous for the system. For critics, the numbers are an argument for the power of the asset manager:

$10 trillion in customer money

At the end of Q3 2022, Blackrock had $7.96 trillion in assets under management. This is an incredible number and makes Blackrock the largest money manager in the world. By the end of 2021, investment bankers had even broken the $10 trillion mark at times, setting a new record.

It is precisely this sheer size of companies like Blackrock and the general trend towards exchange-traded funds (ETFs) that are causing some financial market participants and politicians a headache. With their holdings, the companies control large parts of important companies. No one can be sure how that power will ultimately be exercised. At the same time, Blackrock and ETF create huge market movements with their buying and selling of stocks. In view of their size, they can have a trend-reinforcing effect, which can become an enormous problem for the entire global economy, especially in times of crisis.

ESG is increasingly coming into focus at Blackrock

Blackrock has recently responded to concerns about too much influence. The “Voting Choice” program is to be opened up to private investors. In this way, they could also express their wishes for the exercise of voting rights. In addition, Blackrock has been trying to have a positive impact on the corporate world for a number of years. The industry giant is increasingly focusing on ESG aspects – i.e. the topics of the environment, social issues and corporate governance.

A look at developments in some Republican-led American states shows that this can also be harmful to the Blackrock business to a certain extent. As the Financial Times reported, the company has lost more than $1 trillion in customer funds because Republicans disagree with Blackrock’s “green” investment strategies. The withdrawal from oil investments is a thorn in their side in particular.

South Carolina Treasury Secretary Curtis Loftis told the FT that he will withdraw approximately $200 million from BlackRock funds by the end of the year. Louisiana’s representative, John Schroder, would withdraw $794 million. Blackrock, however, cannot be dissuaded. With a view to possible investments, the company not only looks at companies that meet ESG criteria. Rather, founder and CEO Larry Fink urges companies to reduce greenhouse gas emissions. Otherwise, these would no longer be taken into account in actively managed funds.

Strong course development

Shareholders have done well with Blackrock in recent years. After the Corona crash in March 2000, the industry leader recorded a steep rise on the stock exchange. The share price tripled over the next 20 months. In November 2021, the paper marked a record high of $973. After that, however, the air was gone for the time being, and the stock market plummeted. By mid-October of this year, prices had plummeted by 48 percent to $503, but then rose to $740 at times by mid-November.

In the course of the recent recovery, Blackrock shares are now trading well above the 200-day moving average of $668 and are thus in the overarching upward trend. If this continues, the all-time high of $973 could be headed for again in the coming months. The chances of further rising prices are good, because despite repeated heavy price corrections in the meantime, Blackrock’s long-term price development is strong. Over a ten-year period, the share price has increased by an average of 14.6 percent annually. Compared to the market as a whole, the share clearly “outperformed”: For the broad S&P 500 index, in which Blackrock is listed, it rose by an average of “only” 11.0 percent per year in the same period.

Blackrock is also interesting for investors from a dividend perspective. The current dividend yield is only moderate at 2.5 percent. But in the long term, this can lead to significantly more. The group has increased its payout continuously for twelve years now, with the dividend increasing by an average of twelve percent each year.