By Richard Moroney, Dow Theory Forecasts

Exchange traded funds as a whole, and iShares, in particular, owned by BlackRock (BLK) got off to a strong start in 2013. ETFs saw net inflows of more than $28 billion in January and $38 billion in December, the largest two-month total in history.

And accounting for less than 10% of the assets in U.S. mutual funds, ETFs still have plenty of room for growth.

BlackRock does a lot more than ETFs, but iShares assets under management jumped 27% last year, and ETFs remain the company’s strongest growth engine.

Last year, BlackRock earned $13.68 per share excluding special items, up 15%. Credit the growth to 3% higher revenue, aggressive stock buybacks that reduced the share count by 5%, and a boost in net profit margins to 26.1% from 24.7%.

Growth accelerated in the second half of the year. Fees for investment advice, account administration, and securities lending accounted for 86% of 2012 revenue.

Performance fees — extra compensation for topping preset targets — generated nearly 5% of revenue. BlackRock Solutions, a business that provides risk management and other services to institutional clients, accounted for nearly 6%.

Assets under management rose 8% for the year to a record $3.79 trillion. Nearly two-thirds of those dollars are managed for institutional accounts, with 25% of total assets actively managed and 41% in index funds.

While retail accounts comprise the smallest chunk of assets, they generated more than one-third of BlackRock’s $7.71 billion in base fees for the year.

Stock funds captured 97% of total new ETF money in January, but over the long haul fixed income may offer superior growth potential.

Assets in fixed-income ETFs rose at an annualized rate of 57% over the last decade, but still account for just 0.3% of the global bond market. BlackRock says it is jumping into portions of the bond market that large investment banks have vacated, opening new avenues for growth.

The consensus projects per-share profits will rise 13% in both 2013 and 2014. Both estimates have risen at least 3.4% over the last 30 days. In January, the company raised its quarterly dividend 12%.

At 18 times trailing earnings, BlackRock trades at a premium to its peer group well justified by its superior growth potential, and at a 18% discount to its five-year average P/E ratio. BlackRock has been added to our Long-Term Buy List.

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