SINGAPORE (Reuters) - BlackRock <BLK.N>, the biggest publicly traded U.S. asset manager, said on Monday the financial crisis may trigger consolidation in the funds industry where half the firms are either just breaking even or losing money.
BlackRock Vice Chairman Bob Doll also told reporters in Singapore that he expects the rally in stocks to continue, pushing the S&P 500 index <.SPX> to 1,000 points by the end of the year -- a gain of 13 percent from the current level.
BlackRock, which manages $1.28 trillion (840 billion pounds), is viewed as a potential bidder for Barclays Global Investors (BGI), the fund management arm of Barclays <BARC.L>, sources familiar with the matter have told Reuters.
Doll declined to comment on the interest in BGI, but said his firm was exploring M&A opportunities.
"We are having lots of conversations with fund managers," he said. "We estimate that as many as half the asset managers in the world are break-even or losing money.
Barclays said last week it has received "unsolicited interest" for San Francisco-based BGI, the world's biggest asset manager. A deal would likely be worth $10 billion or more, people familiar with the matter said.
Doll warned mid-sized fund managers may not be able to ride out the financial crisis.
"When it's all over, there will be a number of large, broad-based successful global firms and a huge number of niche firms that are good in one or two things."
"The fund managers that are in the middle, which are trying to be all things to all people, they won't be able to get through."
Doll, who is also the chief investment officer equities, said the rally in stocks since the middle of March will continue, although the S&P 500 index may go through several corrections before hitting the year-end target.
"We still think we are going there (1,000 points) but we'll hit 800 first," he said. The index closed at 882.88 on Friday.
He said the current stock rally, unlike the four previous upswings since the U.S. entered a recession, was supported by rising trading volumes that showed confidence had returned.
Analysts are beginning to upgrade their earnings estimates and there were tentative signs that the economy and financial markets were near the bottom.
Doll said his firm was overweight energy stocks because of cheap valuations and tight supply of oil and other energy resources relative to demand. He also liked healthcare stocks due to their defensive nature and said the information technology sector was relatively inexpensive.
BlackRock, however, is underweight on utilities where cash flow is deteriorating, and Doll saw high earnings risk for stocks in the materials sector.
Doll also said he remains underweight on financial stocks, which may have seen their bottom but continue to face risks from more capital-raising and the ongoing credit market turmoil.
The U.S. government recently ordered 10 of the largest U.S. banks led by Bank of America <BAC.N> and Wells Fargo <WFC.N> to raise $74.6 billion to plug potential capital shortfalls.
(Reporting by Kevin Lim and Saeed Azhar; Editing by Muralikumar Anantharaman)