Crypto News: ETF IQ: Earning $0.00146 on Every Dollar

Welcome to ETF IQ, a weekly newsletter dedicated to the $14 trillion global ETF industry. I'm Bloomberg News reporter and anchor Katie Greifeld.

The world's biggest money manager reported earnings on Friday, and the headline is staggering: BlackRock Inc. now controls a record $11.5 trillion. But how much money does the investment giant make for each dollar?

To get a sense of this, Bloomberg Intelligence's preferred method is to divide a firm's fees by its average assets under management. On that basis, BlackRock's third-quarter fees clocked in at $4 billion against $11 trillion of AUM — producing an annualized fee rate of 14.6 basis points.

Phrased differently, that means BlackRock earns roughly 0.146 cents for every dollar of AUM, based on this informal rule of thumb.

Comparing that haul to, say, Apollo Global Management might help explain why BlackRock is pushing so aggressively into private assets.

Apollo's estimated third-quarter management fees sit at $695 million versus $533 billion of assets, leading to an annualized fee rate of 52.2 basis points — or three times that of BlackRock. And according to Bloomberg Intelligence's Neil Sipes, firms such as Blackstone, KKR and Ares have figures that range from 50 basis points to 100 basis points.

A big reason why BlackRock's margins are lower is because $4 trillion of their $11.5 trillion of assets is housed in low-cost ETFs. As a rule of thumb, private-market products command much higher fees and, thus, have fatter margins.

It'll be fascinating to see how BlackRock's economics change with all they have in the pipeline. As detailed by Bloomberg's Silla Brush, the firm completed its $12.5 billion acquisition of Global Infrastructure Partners just after the quarter ended — a deal that will add $116 billion of private-market assets. Not to mention, BlackRock is in the process of closing a £2.55 billion ($3.3 billion) acquisition of private-markets data firm Preqin. And finally, Bloomberg News has reported that BlackRock is exploring a purchase of private-credit firm HPS Investment Partners.

Schwab Asset Management released its annual ETF study this past week, and similar to last year's report, it's striking how risk-averse millennials are.

ETF investors born from roughly 1981 to 1996 have 46% of their portfolios in fixed income, which is one percentage point higher than last year's reading. That compares to 39% for Generation X — those born from around 1965 to 1980 — and 33% for baby boomers.

Put another way, millennial ETF investors have 54% of their portfolios in equities, compared to 67% for boomers.

It's far from intuitive. Textbooks would suggest that younger investors are supposed to be more heavily weighted towards riskier assets (given their longer investing horizons), while older cohorts are theoretically drawn to the steady payout streams that fixed income provides.

Of course, the point could be made that boomers likely have more of their money in mutual funds or other structures, so maybe this report isn't representative of an entire generation. But the fact remains that the millennials in Schwab's sample seem over-indexed to bonds, at least when judged by the standard 60-40 portfolio approach.

I spoke to Schwab Asset Management's David Botset about this last year, and his explanation was that with all millennials have lived through — several recessions, a bear market or two and a pandemic — it would make sense that they're more cautious investors than some of their peers.

One could imagine that logic holds water in today's market. Swirling questions over the Federal Reserve's rate-cutting trajectory, a fiercely contested US presidential election and several wars overseas have injected volatility risk back into global markets. And as such, 44% of the millennials surveyed by Schwab said they plan to invest in bond ETFs over the next year.

The famously tax-efficient ETF market is about to add two funds offering a fresh way for investors to cut what they owe on capital gains.

Amateur investors are plunging into the complex world of derivatives-powered ETFs that can dangle huge payouts riding big-name stocks.

Investors who buy bundles of loans packaged into bonds are increasingly using ETFs to do so, according to a report from Bank of America.

In this week's Drill Down on Bloomberg Television's ETF IQ, Cboe Global Head of ETP Listings Rob Marrocco stopped by to talk about the recent launch of a trio of funds from Precidian which hold American depositary receipts for one company based outside the US — specifically, Shell Plc, AstraZeneca Plc and HSBC Holdings Plc.

While traditional ADR investing leaves traders exposed to foreign-exchange swings, the new ETFs use swaps to manage those fluctuations. That built-in currency hedge is designed to simplify the process of buying overseas companies, Marrocco said:

A lot of folks don't realize that when they're buying the ADR, they're buying it in US dollars, they have that embedded currency risk and what that potential risk and volatility potentially holds along with that position. And so I do see that absolutely more sophisticated investors today may be applying that overlay onto their products, this just allows easier access.

Jodi Love of T. Rowe Price and Cambria's Meb Faber join me, Eric Balchunas and Scarlet Fu on Bloomberg Television's ETF IQ. Watch live on Mondays at noon on Bloomberg Television, on the Bloomberg Terminal at TV <GO> and on YouTube.