Why the Dimensional ETF mandate matters for State Street stock
State Street (STT) has been appointed to provide end to end servicing for Dimensional Fund Advisors’ new ETF share class structure, the first arrangement of its kind approved in the U.S. under recent SEC exemptive relief.
For you as an investor, this mandate highlights State Street’s role across custody, accounting, ETF basket creation, create or redeem order management, settlement, transfer agency and reporting for Dimensional’s actively managed mutual funds that are adding ETF share classes.
The engagement builds on Dimensional’s earlier decision to use State Street for its UCITS ETF range in Europe. It links this new U.S. role to an existing global partnership that already covers Asia Pacific, Europe and North America.
State Street reports that it services more than 3,000 ETFs and US$8.1t of assets across 15 countries and that it has been involved in ETF servicing for over 30 years, during the development of what is now a US$20.6t global ETF market.
See our latest analysis for State Street.
Despite a recent 2.5% 1 day share price return decline to US$122.52 and weaker shorter term momentum, State Street’s 1 year total shareholder return of 41.72% and 3 year total shareholder return of 77.48% point to stronger longer run performance as investors weigh this ETF servicing mandate and the upcoming earnings report.
If this kind of fund servicing story interests you, it can be useful to broaden your watchlist beyond a single stock and scan for other resilient financial names. A straightforward next step is to check out a curated set of companies via a discovery style screener such as 20 top founder-led companies
With State Street trading at US$122.52 and sitting at an estimated 28% discount to an intrinsic value estimate and 18% below the average analyst target, the key question is whether this represents genuine value or if the market is already factoring in future growth.
Most Popular Narrative: 15.1% Undervalued
With State Street at $122.52 versus a narrative fair value of $144.30, the story centers on whether fee power and ETF scale can support that gap.
The acceleration of passive and ETF investing continues to benefit State Street's leading SPDR ETF franchise, as evidenced by significant inflows, expanding market share in low cost products, and record trading volumes, which are expected to drive increased recurring management fees and higher operating margins over time.
It is worth examining the assumptions behind that confidence in fee growth and margins. The narrative focuses on potential future earnings power and an earnings multiple that is lower than many peers. Investors may want to understand how those elements combine to produce the current fair value estimate.
Result: Fair Value of $144.30 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, this hinges on State Street keeping pace with fee pressure in ETFs and managing tech disruption, where faster moving fintechs and blockchain based settlement could chip away at traditional services.
Find out about the key risks to this State Street narrative.
Next Steps
Given the mix of optimism and concern in this story, it makes sense to look at the numbers yourself and decide quickly where you stand by using the 5 key rewards and 2 important warning signs.
Looking for more investment ideas?
If you stop at just one stock, you risk missing out on other opportunities that fit your style, so widen your search and put more ideas on your radar.
- Spot potential value opportunities early by reviewing companies that currently screen as 61 high quality undervalued stocks.
- Prioritize stability and capital protection by focusing on businesses that appear in the 67 resilient stocks with low risk scores.
- Hunt for less crowded opportunities by scanning the screener containing 26 high quality undiscovered gems.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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