As the head of the world's largest asset management firm sees things, ETFs will be playing an ever-increasing role in investor portfolios in ways that the financial world never saw coming.
Whether it's getting a toehold in mortgages, developing new hedging strategies or simply trying to generate outperformance, BlackRock CEO Larry Fink believes growth of the funds could be in its early stages.
That's quite a statement to make considering that total U.S. ETF assets just breached $3 trillion, or about triple where they were six years ago.
"We're seeing more utilization across the board in more products," Fink told analysts on a conference call after the firm reported second-quarter earnings Monday morning. "We have much more opportunities for ETFs to grow not just in equities but in fixed income. I believe this is just the beginning."
BlackRock is the biggest player in the burgeoning ETF industry, with assets in its iShares family crossing $1.5 trillion in the past quarter. The firm manages nearly $5.7 trillion for clients.
Officials emphasized the iShares growth in a quarter that otherwise disappointed. BlackRock posted earnings of $5.24 a share, missing analyst estimates of $5.40, sending its shares down more than 3 percent in intraday trading.
Indeed, the ETF story is compelling: Back in 2010, the industry boasted just $992 million in assets and was still a relatively unknown frontier on the investing landscape. Now, though, ETFs have evolved into places few had suspected.
Among those that Fink cited were mortgage-backed securities, the replacement of derivatives and options in hedging strategies, and, perhaps the most compelling, the use of passive-focused ETFs in active strategies to try to generate outperformance when compared with benchmarks.
"We believe the environment for ETFs is continuing to evolve," he said. "We believe it's continuing to grow, and much of it also has to do with ecosystem innovation."