State Street: Institutional investors with biggest overweight in equities in 16.5 years

State Street Global Markets released the results of the State Street Institutional Investor Indicators for November. Over the past month, the State Street Risk Appetite Index rose the fourth consecutive month while the State Street Risk Holdings Indicators showed that institutional investor allocations to equity increased to the highest level in sixteen and a half years.

The State Street Risk Appetite Index rose to 0.27 in November, the fourth consecutive month of risk seeking activity.

The State Street Holdings Indicators showed that long-term investor allocations to equities rose by a full percentage point to 53.8% the highest level in sixteen and a half years. This was funded by a 20bps fall in allocations to cash and a larger 80bps fall in holdings of fixed income securities.

Comments from Michael Metcalfe, Head of Macro Strategy State Global Markets:

“Long-term investors go into 2025 with their biggest overweight in equities in sixteen and a half-years. While there are plenty of uncertainties about growth, policy and politics in the coming year, investor positions suggest their conviction in a US-led equity market rally is unflinching.

Not only is the overweight in equities high historically, it is also concentrated. Across the regions we track, the US is the only zone investors are currently overweight and it is a sizeable holding. By the end of November, holdings of US equities relative to the rest of the world were close to the most stretched in the twenty-six year history of State Street Global Market’s data set. In short from the point of view of long-term investor holdings, the US has rarely been so exceptional. In contrast, having begun 2024 with neutral holdings in European equities, investors’ underweight has fallen to a new eight year low.

Long-term investor positioning in sovereign fixed income markets has also been less optimistic, but is equally revealing. Demand for French sovereign bonds slumped to a six-month low in November, ahead of the subsequent collapse of the French government. For now in a telling sign of the lack of contagion, investors remain overweight other high debt countries in the Euro area such as Italy.