State Streets Status – US-FOREX.US
For money managers, as much as for any investor in the markets, the second quarter of 2009 brought some welcome relief. With the S&P 500 up 15% from April through June, the profits of companies that manage assets for institutions and individuals are likely to have rebounded from the first quarter’s dismal results. For State Street Corp., which reports earnings Tuesday, specializing in passive investment strategies that track the broad market instead of trying to beat it could provide a leg up on the competition this quarter.Many actively managed funds lost big in the market crash that followed Lehman Brothers’
bankruptcy. State Street manages money for large institutions such as pensions and endowment. Sick of paying higher fees for active management that didn’t shield them from the crash, a growing number of institutions are looking at passive strategies for their investments in U.S. stocks, in particular. State Street could benefit from that shift. Analysts expect the Boston firm to report second-quarter earnings of 97 cents a share, down from 1.39 last year. But Citigroup analyst Greg Ketron thinks margins and sales are growing and rates the stock a buy, figuring it’s worth 57 a share, compared to the current price of 48.11. The firm will earn profits of 4.30 a share this year, writes Ketron. That’s higher than the consensus among Wall Street analysts, who think profit will be just 3.91 a share.The rebounding stock market will also help earnings since, like most money managers, State Street takes a percentage of the assets it manages each year. The more valuable those assets, the more fees State Street reaps. Much of that rebound is already priced into the stocks of asset managers: State Street is up 41% in the last three months. However, as the threat of a prolonged recession recedes, clients could begin to pour money back into riskier-and more expensive-investments like stocks.Some evidence of that is already showing up. According to mutual fund tracker Morningstar, investors put 112 billion into mutual funds in the second quarter, compared with 6.9 billion in the first three months of the year. That figure excludes safe, and low-cost, money market funds. For State Street, which fared much better than some rivals during the financial crisis, the return to confidence in the markets could be doubly sweet.Thomson Reuters contributed to this report.