(Bloomberg) -- BlackRock Inc., the world’s biggest money manager, said second-quarter profit climbed 32 percent as rising stock markets boosted fees.

Net income rose to $729 million, or $4.19 a share, from $554 million, or $3.08, a year earlier, the New York-based company said today in a statement. Excluding certain items, adjusted earnings of $4.15 a share beat the $3.81 average estimate of 21 analysts surveyed by Bloomberg.

Chief Executive Officer Laurence D. Fink, 60, has said BlackRock has the potential to increase its asset base by about 5 percent annually by developing new exchange-traded funds to meet client needs and expanding its reach among individual investors. BlackRock’s assets rose 8.3 percent to $3.86 trillion in the 12 months ended June 30, and fell 2 percent from the previous quarter.

“BlackRock had a strong first quarter, so they were already operating on a higher base in terms of assets for the year,” Macrae Sykes, an analyst at Gabelli & Co. in Rye, New York, said in an interview before the results were announced. “They hit a speed bump in June, but as markets stabilize, I think they can achieve that 5 percent growth and we’ll continue to see significant migration to ETFs.”

BlackRock announced earnings before the start of regular U.S. trading. The shares gained 32 percent this year through yesterday, compared with the 28 percent increase in the 20- member Standard & Poor’s index of asset managers and custody banks. The stock closed at $291.69 on May 21, the highest ever, before retreating to $272.29 by the end of yesterday’s trading.

S&P Rally

The firm acquired Barclays Global Investors in December 2009 to expand into passive investments. It offers actively managed stock and bond funds, the iShares ETFs, hedge funds and portfolios that use mathematical models.

Money managers such as BlackRock, which earn fees based on the assets that they manage for clients, traditionally benefit from rising stock markets and investor deposits into higher-fee active funds. The U.S. benchmark Standard & Poor’s 500 Index increased 2.4 percent in the second quarter while the MSCI All Country World Index of global stocks fell 1.2 percent. In the second quarter of 2012, the S&P 500 Index dropped 3.3 percent and the MSCI Index declined 6.4 percent.

Investors pulled about $60 billion from U.S. bond funds in June, the biggest monthly redemptions in records going back to 1961, according to estimates from the Investment Company Institute, amid concern that the Federal Reserve may reduce its bond purchases. The yield on the 10-year Treasury note rose to 2.49 percent on June 28 from 1.85 percent March 29, according to data compiled by Bloomberg. Bond prices fall as yields rise.

‘Safety Net’

About 31 percent of BlackRock’s assets are in fixed income, with the majority representing institutional clients, which “provides the company with a bit of a safety net in the current volatile environment,” Daniel Fannon, a San Francisco-based analyst at Jefferies & Co., wrote July 15 in a note to clients. Such fixed-income products tend to generate lower fees, so BlackRock’s earnings may not be as sensitive to rising rates as the market anticipates, Fannon said.

In 2012, investors deposited $81.8 billion into BlackRock’s stock and bond ETFs, while pulling $17.2 billion from active funds. The firm has revamped equity and fixed-income teams to revive deposits into active products. Chris Leavy, chief investment officer of BlackRock’s fundamental equity unit in the Americas, replaced portfolio managers at strategies that represented about 40 percent of the division’s $115 billion.

ETF Deposits

Investors put $26.3 billion into BlackRock’s stock ETFs in the first quarter following changes made last year after the firm lost market share to Vanguard Group Inc., the Valley Forge, Pennsylvania-based money manager that boosted assets in its funds with lower-cost products.

BlackRock in October created the iShares Core Series, which is made up of six ETFs with lowered fees and four new ones, to attract individual and institutional clients looking to invest over the long term. It had earlier combined the sales teams for its iShares unit, the world’s largest provider of ETFs, and BlackRock’s retail funds. In March, BlackRock enhanced its partnership with Boston-based Fidelity Investments to sell more ETFs directly to retail investors.

“We view BlackRock’s institutional-heavy client mix and ETF market leadership as providing downside support against any prolonged retail outflows,” Morgan Stanley analysts led by Matthew Kelley wrote in a July 8 research note.

ETFs have been the fastest-growing segment of the asset- management business, benefiting money managers such as BlackRock, Vanguard and State Street Corp. In the 12 months ended May 30, ETF assets in the U.S. increased 33 percent to $1.48 trillion, according to data from the Washington-based Investment Company Institute.

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