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How ETFs Can Impact State Street’s Investment Management Division

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Aug. 18 2020, Updated 5:13 a.m. ET

STT’s Investment Management division

State Street Corporation’s (STT) Investment Management division saw a YoY (year-over-year) rise of 24.0% in total fee revenues in the first quarter. During the same period, the division’s AUM (assets under management) witnessed a YoY rise of 7.0%.

However, the company expects its Investment Management division’s second-quarter AUM to rise marginally on a sequential basis. The markets were helped by the division’s first-quarter earnings, the May jobs report, and the meeting between President Trump and President Kim Jong-un of North Korea. This marginal rise could be offset by trade tensions, lower allocations toward equities, and the negative impact on State Street Corporation’s ETFs.

State Street’s Investment Management division garners a substantial portion of its management fees from its AUM. As concerns surrounding global trade tensions increase, the division’s assets under management are expected to see an ongoing impact.

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Peer comparisons and looking ahead to H2 2018

In the first quarter, BlackRock (BLK) saw inflows of $35.0 billion in its ETF offerings. This metric was lower than the previous year’s average inflows of $45.0 billion–$55.0 billion per quarter. 

This year-over-year decline was primarily due to substantial withdrawals from ETFs related to global equities. Corporate debt offerings had a secondary influence on this decline. In the second quarter, investors once again parked their funds in US equities. A large portion of these funds is expected to come through BlackRock’s iShares offerings.

In the second half, any slowdown in rate hikes by the Federal Reserve due to global trade uncertainty, as well as the impact on earnings resulting from the higher cost of inputs, can result in higher inflows toward debt-related ETFs. This trend is expected to be offset by outflows from equities. 

During the same period, traditional asset managers (XLF) Invesco Limited (IVZ) and T. Rowe Price Group (TROW) could see higher inflows in their debt offerings. This trend could result from investors deploying capital in lower-risk assets.

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