State Street Global Markets on 10 January 2025 released its institutional investor indicators--which include the  and the --for the month of December 2024.

Its risk appetite indicator, which measures investor flows across equities, FX, fixed income, commodity-linked assets, and asset allocation trends, decreased from 0.27 to -0.09, meaning institutional investors shifted from adding to their risk exposures in November to reducing their risk in December.

Michael Metcalfe, head of macro strategy at State Street Global Markets, highlighted three key takeaways about investor behaviour in December. First, “when investors looked to reduce risk into year-end, they were still more inclined to do so from sovereign bonds than they were from equities. With the allocation to equities largely unchanged in the month, this means long-term investors still begin 2025 with their biggest overweight in equities in 16 and a half years.”

Second, “long-term investors’ overweight in equities remains highly concentrated, but investors are beginning to do something about it,” he noted. “Across the regions we track, the US is the only zone investors are overweight, but the size of the overweight was at least reduced across the month of December and is no longer at a 26-year high. This reduction could reflect sensible risk management, but could also reflect uncertainties surrounding US monetary, fiscal and trade policy.”

Finally, “as optimistic investors are about equities, long-term investor pessimism toward sovereign fixed income markets remains entrenched,” concluded Metcalfe. “As risk was reduced into year-end, it was allocations to fixed income which fell. Concerns about holding duration come from fears of a resumption of both inflation and unsustainable fiscal deficits. This seems especially entrenched in the eurozone where long-term investor demand for French bonds slumped to a six-month low in November and did not recover in December. Demand for [German] bunds and [Spanish] bonos has now slipped too, only demand for BTPs [Italian bonds] has remained steady, rounding off a miserable year for institutional demand for most European assets.”

Released every month, State Street’s institutional investor indicators measure risk appetite quantitatively by analysing the buying and selling patterns of institutional investors. The risk appetite index is calculated by measuring investor flows across equities, FX, fixed income, commodity-linked assets and asset allocation trends, explains State Street, while the holdings indicator looks at how investor portfolios are allocated toward equity, fixed income and cash.