Institutional investors are returning to risk, according to State Street’s latest Institutional Investor Indicators report, which showed its Risk Appetite Index rising to +0.36 in June. The increase marks a significant tilt towards riskier assets, with equity allocations rising 0.7% over the month — surpassing levels at the start of the year.
State Street notes that the rotation into equities was largely funded by a reduction in cash holdings, while bond allocations held steady. Risk-on positioning was most pronounced in asset allocation, equities, and commodities.
Marija Veitmane, head of equity research, State Street Markets says: “In June institutional investors continued to add risk to their portfolios, perhaps spurred by falling market volatility. Even though we have seen broad-based buying of risky assets, the largest buildup in risky positions was in asset allocation, equity and commodity asset classes. Institutional investors have increased their allocation to stocks, mostly redeploying cash.
"Their allocation to stocks has surpassed the start of the year’s highs by the end of June. Within equities, we have seen consistent buying of US stocks, with majority of the buying concentrated in Technology sector. Buying of Energy stocks and commodity currencies was also prominent perhaps triggered by Middle East conflict-induced increase in oil prices."
“In APAC region, Australia has captured institutional investors’ imagination in June. We have seen buying of stocks, bonds as well as AUD. Domestic economic and earnings fundamentals are relatively strong, as labour market continues to show strong signs of growth while wages steadily increase. Furthermore, the Labour Party’s decisive victory in Australia’s latest election better ensures expansionary fiscal policy. "
