BlackRock, the world’s largest asset manager, is raising the bar when it comes to providing investors and advisors the tools they need to construct well-diversified portfolios. Morningstar senior principal for multi-asset strategy ratings Jason Kephart, who oversees BlackRock’s Parent rating, recently updated our assessment of the firm’s stewardship practices. Here he discusses what BlackRock does well, what could be improved, and how investors and advisors can harness the best of what the firm has to offer.

Susan Dziubinski: Talk broadly about Morningstar’s Parent ratings, Jason. What are they? And what do they tell investors?

Jason Kephart: Our Parent rating represents how good of a steward an asset manager is for its investors. That means doing things like keeping fees low or reasonable, being smart about product launches, and being able to attract and retain great investment talent. The Parent ratings are also an input into how we calculate our Morningstar Medalist Ratings at the fund level, along with our view of the fund’s People and Process Pillars.

Dziubinski: How does Morningstar evaluate a money manager when assigning Parent ratings? What are the types of things you and the team are looking at?

Kephart: For a firm as large as BlackRock, we turn over a lot of stones, as you might imagine. Some of the most important things we look for are stability, both at the fund manager and senior leadership positions, how well the funds are delivering for investors, what types of products they’re launching or closing, and how well the firm is doing financially. If a company is dealing with consistent outflows from its funds, it may be hard to reinvest in the business and keep talent, and it could mean forced layoffs.

Dziubinski: What’s the rating scale for Morningstar’s Parent ratings?

Kephart: The best asset managers get a High Parent rating, and the worst get a Low Parent rating. Most fall in the Average Parent rating bucket.

How Does BlackRock Rate on Stewardship?

Dziubinski: You recently issued your new Parent rating report on BlackRock. In it, you say that BlackRock has raised the bar for what it means to be a truly diversified asset manager. What did you mean by that?

Kephart: When you look at what BlackRock has done recently—particularly its acquisitions on the private investing side in 2024—there’s really no other firm that can match its breadth of active offerings, passive offerings, liquid vehicles, and semiliquid vehicles. And now, illiquid vehicles with the purchases of Global Infrastructure Partners and HPS Investment Partners. There’s no other asset manager on the planet that can really match BlackRock’s breadth of offerings.

Dziubinski: Is there a risk that the acquisitions won’t add value for investors? What’s BlackRock’s record on the acquisition front?

Kephart: There’s always a risk. Acquisitions can be difficult, particularly when you’re dealing with successful cultures that you’re trying to merge together. BlackRock has had a lot of experience with acquisitions, and it has learned from things that happened in the past. I think BlackRock would be the first to tell you that the acquisition of Barclays Global Investors, which included iShares, back in 2008, probably could have gone more smoothly.

Now, for example, BlackRock is letting the acquired private-infrastructure and private-credit firms keep their own branding. It’ll be “Global Infrastructure Partners, a part of BlackRock” rather than forcing Global Infrastructure Partners under the BlackRock banner. That could help keep the people who are joining the firm motivated because they get to keep some of their own culture. Ultimately, how all those acquired cultures mesh and how well people work together drive successful mergers that help investors in the end.

Which of BlackRock’s Hands-Off Solutions Are Best?

Dziubinski: BlackRock offers investment solutions for both hands-off and hands-on investors. How do the company’s hands-off products rate when compared with the hands-off products that other firms offer?

Kephart: We have a very high degree of confidence in BlackRock’s hands-off products. In that bucket, I would include its target-date funds, asset allocation funds, and model portfolios, which are doing a great job of helping financial advisors take some investment management work off their plates while also driving successful outcomes for investors. The performance we’ve seen from the model portfolio team is topnotch. We have a lot of confidence there.

We also think BlackRock’s target-date series has some of the best offerings in the industry. If your 401(k) plan offers a target-date managed by BlackRock, you’re in a really good spot.

How Good Are iShares ETFs?

Dziubinski: BlackRock has plenty to offer hands-on investors with its suite of iShares ETFs. Let’s start with BlackRock’s equity offerings. Is there anything missing from the company’s lineup of stock funds?

Kephart: No. BlackRock offers everything across the board. It has great low-cost core building-block stock and bond ETFs. It also has a pretty solid active management fundamental equity team. And its quantitative team does some innovative stuff, particularly on the alternatives side.

Dziubinski: What about the variety and quality that BlackRock offers on the fixed-income side of things?

Kephart: We have a lot of confidence in BlackRock’s fixed-income capabilities, too. Global fixed-income chief investment officer Rick Rieder earned Morningstar’s Outstanding Portfolio Manager Award in 2023. And he has built a deep, well-resourced team on the active fixed-income side. We think BlackRock has a lot of good products there.

On the muni-bond side, there has been a little bit more turnover than we’d like to see, so we recently downgraded the People rating of BlackRock National Municipal MANLX to Above Average from High. While we still like them, our conviction has gone down a bit: Team turnover always raises some questions about stability and what we can expect going forward.

On the iShares side, you have low-cost options like iShares Core U.S. Aggregate Bond ETF AGG, which is a great starting point for any bond portfolio.

Read Morningstar’s full Analyst Report about AGG.

Active ETFs From BlackRock

Dziubinski: Active ETFs are growing in popularity, and the iShares ETFs are largely passive products. Is BlackRock growing in the active ETF space?

Kephart: We’re seeing a lot of development there. Rick Rieder came out with an active ETF on the fixed-income side, iShares Flexible Income Active ETF BINC, that’s grown to more than $8 billion in assets since it was launched in May 2023. Clearly, it’s attracting a lot of investor interest.

We’ve seen less interest in active ETFs on the equity side, but BlackRock has launched a handful of defined-outcome ETFs, which we consider to be active strategies. In general, we have concerns when it comes to some of these complex options-based strategies that can sound too good to be true because investors are prone to use them incorrectly. There’s so much education needed around using these products correctly.

BlackRock’s Leadership: Is Change Imminent?

Dziubinski: What about leadership at BlackRock, specifically, succession planning around CEO Larry Fink and Rick Rieder? Any concerns from Morningstar’s perspective?

Kephart: No concerns. We think Larry Fink will be around for another few years, given all the acquisitions BlackRock has recently made on the alternatives side. We think he’s going to want to see those acquisitions integrated before he steps away. Investors likely have another few years of Larry Fink steering the ship.

On the fixed-income side, Rick Rieder has a deep team; we don’t have any immediate concerns on the on the succession planning there. But succession planning is always something to keep an eye on.

What Could BlackRock Improve Upon?

Dziubinski: BlackRock earns an Above Average Parent rating from Morningstar. What could the firm be doing better that might push it up to a High Parent rating?

Kephart: There’s a lot that BlackRock is doing well. But whenever there are a lot of acquisitions, we want to see the dust settle before changing our opinion one way or another.

On the iShares side, it is very active in launching new products in hot areas. And that gives us some pause, just how much product gets launched. It’s hard for me to keep up with, and it’s my job! Some of their “hot launches” do well, like iShares Bitcoin ETF IBIT, which gave access to an asset class that was previously not available through ETFs. But there’s a lot of “hot” product development going on at BlackRock, and that makes us a little more conservative on our Parent rating for the firm.

4 Things to Know if You’re Investing With BlackRock

Dziubinski: To sum up, what are the key things that investors need to know if they’re currently investing with BlackRock or iShares, or if they’re thinking about it?

Kephart: First, BlackRock’s multi-asset teams are impressive. Whether you’re a financial advisor looking for model portfolios or you’re an individual investor looking for target-date funds or classic balanced funds, I would look to BlackRock.

Also, if you’re looking for core building-block ETFs that are very low-cost, comparable to what Vanguard and Schwab offer, iShares has those for you.

On the active fixed-income side, we have very high confidence in BlackRock’s teams delivering great results for investors.

I would also keep an eye out on future development in the semiliquid and illiquid alternatives space. We expect to see more fund launches from BlackRock in this area.