Risk appetite among institutional investors dropped three-fold in January, with the State Street Risk Appetite Index falling from 0.18 to -0.09 throughout the month.
They were invigorated by an end to interest rate hikes at close of last year as the prospect of potential cuts down the line painted a positive outlook for risker assets. However, this return in confidence receded in January as investors re-evaluated their timeframe for rate cuts.
Institutional investors dropped their average exposure to equities by 0.2 percentage points to 51.6%, instead building up their cash allocation by 0.6 percentage points, which now makes up a fifth (20.5%) of their portfolios.
The companies that institutional investors were buying tended to be in defensive sectors rather than cyclical parts of the market, according to State Street’s head of macro strategy Michael Metcalfe.
See also: RSMR: Glass half full or half empty for 2024?
This cautious approach was also visible in the fixed income space, with investors seeking assets in developed and core sovereign bond markets.
Metcalfe said: “These behaviours highlight the dilemma which markets faced through much of 2023, namely that more robust economic news, may at times not be positive for risk appetite.”
Confidence among institutional investors may have fallen back in January, but it strengthened in the retail market. UK investors added £2bn to equity funds throughout the month – the eighth highest on record.
This article was written for our sister title Portfolio Adviser
