Institutional investors mostly avoided major portfolio shifts last month as they awaited clearer economic data, according to State Street Global Markets. Investor sentiment was muted in November as the State Street Risk Appetite Index slipped by –0.09, showing caution driven by uncertainty on the US government shutdown.
State Street’s Holdings Indicators showed long-term allocations to equities dipping by 1 basis point in November, though equity weightings remain in positive territory. Cash and fixed income holdings went up by 0.006 and 0.003 points respectively.
State Street’s Institutional Investor Indicators analyse actual buying and selling patterns from the firm’s assets under custody and administration, capturing shifts in equity, fixed income, foreign exchange and commodity-linked exposures. The Risk Appetite Index measures behaviour across 22 dimensions of risk, with positive readings indicating risk seeking and negative values signalling risk reduction.
Noel Dixon, senior macro strategist at State Street Global Markets, said investor behaviour in November was shaped by reduced conviction and a reluctance to implement sizable portfolio changes. “Several notable trends emerged from investor behavior in November. Firstly, institutional investors predominantly maintained neutral positions. The uncertainty arising from the government shutdown led to reduced market conviction. Consequently, investors hesitated to implement significant portfolio adjustments as they await clearer economic data.”
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Long-term investors still hold a high concentration of US technology equities, however, some have started to diversify their portfolios by investing in Europe and China. According to him, despite this, allocations to broader emerging markets remain relatively low, said Dixon.
Despite the volatile backdrop, investors continued to avoid fixed income. “Finally, investors continue to refrain from allocating funds to fixed income assets. Despite the data uncertainty caused by the US government shutdown, US Treasury securities did not see significant inflows. Equities persist as the preferred asset class among investors, while cash ranks as a secondary option,” Dixon said.
