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Billionaire Dan Loeb is betting big on $5.7 trillion fund giant BlackRock (BLK)

Dan Loeb's hedge fund is up 10.7% for the first half of this year, according to a client letter dated July 26.

Dan Loeb's Third Point hedge fund is betting big on BlackRock, the world's largest asset manager.

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In a client letter dated July 26 explaining its stock investment, Third Point said: "W

Here's an excerpt from the letter (emphasis added):

"We see BlackRockas far more than an asset manager dependent on market movements. It is increasingly becoming a network or index-like business, with earnings power driven by ETFs (via iShares) and data & analytic services (via Aladdin). These are oligopoly businesses with faster growth and much higher incremental margins than traditional asset management – and thus deserve much higher P/E multiples over time. With shares at less than 15x our 2019 EPS forecast, and an outlook for consistent mid-teens EPS growth, we think BlackRock is a misunderstood franchise that is just beginning to inflect."

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"...In the US, iShares had more inflows in 1H17 than the next 10 competitors combined...We think this acceleration in ETFs is just getting started, as regulatory change globally pushes lower-cost, transparent investment products, and institutional investors use ETFs as investment solutions, particularly in fixed income – an area where BlackRock has an even higher global market share for ETF products (~50%)."

That point on ETFs was echoed by BlackRock's CEO Larry Fink earlier this month, Business Insider previously reported. BlackRock has $5.7 trillion in assets.

"Index and ETFs still only represent 10% of the entire equity market global capitalization," Fink said July 17 on his firm's second quarterly call. "With $160-odd trillion global equity market capitalization, we have much more opportunities for ETFs to grow, not just on equities, but in fixed income. And I believe this is just the beginning."

Third Point is up 10.7% for the first half of this year, according to the firm's client letter. That compares to a 9.3% gain in the S&P 500 over the same period.

Third Point's offshore fund gained 4.6% in the second quarter compared to a 3.1% gain in the S&P 500, the letter said.

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Here are some more excerpts from Third Point's letter:

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