Update State Street (and my last catch-up post on my Jubak Picks 50 portfolio)

01/02/2012 6:02 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Last year—on January 18, 2011 to be precise—I sold State Street Group (STT) out of my long-term Jubak Picks 50 http://jubakpicks.com// . (See my post on http://jubakpicks.com/2011/01/18/6215/ for last year’s revisions. The revisions for 2012 will be coming next week. My apologies for messy bookkeeping. While I sold State Street I failed to delete the stock from the portfolio page. Today’s blurb fixes that error.)

State Street is undoubtedly the best of the asset management and custody banks. I just don’t feel, however, that this is enough. In the run up to the Lehman bankruptcy and the global financial crisis, State Street turned out to have invested a sizeable part of its balance sheet in assets that were much riskier than their credit ratings indicated or than State Street believed they were. Sure, you can argue that State Street did no worse at this than other banks—and was indeed better than many. And it is certainly true that State Street has raised a mountain of capital since then to buttress its balance sheet.

But I don’t think that’s enough. I think investors are looking at years of volatility in the financial sector as financial institutions write-down or write-off what were supposed to be low-risk assets. (Remember that European banking regulators were still saying that sovereign debt carried zero risk of default in the last-but-one EuroZone stress test.) I can’t tell you what will blow up or who holds it (or some derivative of it), but that’s exactly what bothers me about the sector in general.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of State Street as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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