Institutional Investors Shift US Equities, Dollar Positions to Global Markets, per Report

Girding for turbulent global markets and geopolitical tensions, institutional investors are reducing their U.S. equity holdings and dollar exposure, instead seeking investments abroad, according to a report from the International Forum of Sovereign Wealth Funds.

The report, conducted by State Street, analyzed the activities of long-term institutional investors with assets—more than $53.8 trillion in assets, combined—under State Street’s custody and administration.

According to the analysis, major asset allocators are shifting their investments to emerging markets from U.S. equities. They are also reducing their dollar positions in favor of the euro, while maintaining their positions in European equities.

“Equity allocations climbed to their highest point in a decade, even as funds became more sensitive to valuation and concentration risks entering 2026,” the IFSWF stated. “Many sovereign wealth funds also began selectively rotating away from the U.S., increasing exposure to Japan, Europe, and emerging markets as part of a wider move toward regional diversification.”

Despite U.S. import tariffs and geopolitical tensions roiling the markets, the analysis found that investors continued to be “broadly resilient” to risks in 2025.

“Entering 2026, institutional investor behavior shows signs of moderation,” the report stated. “Risk appetite has moved toward a more neutral stance, with allocation decisions reflecting early evidence of geographic rotation across equity and bond markets.”

On a sector basis, State Street found that institutional investors are keeping their overweight positions on information technology and communications services assets, while slashing their overweight positions in financials from 2025. Meanwhile, health care and consumer staples investments remain the largest underweight positions held by institutional investors.

In currency trading, the report attributed the shift to the euro to a weak dollar, narrowed interest rate gaps and diverging monetary policies.

“Currency movements now have a greater impact on overall portfolio returns,” the report stated. “Several members have trimmed U.S. exposure and increased allocations to other developed markets.”

Allocators remain underweight in U.S. Treasurys, Treasury inflation-protected securities and U.K. government bonds, with no sign of buying in these debt markets, according to the report. The report also stated that investors are more bullish on Australia, Japan and core eurozone debt markets, while selling overweight positions in Norway and Canada.

Geopolitical uncertainty, as well as potential policy surprises, will likely sustain market volatility and a more fragmented global economic outlook, according to the analysis.

“As equity market turbulence has begun to rise since peak optimism in late 2025, high aggregate equity exposure increases portfolio sensitivity to adverse shocks,” the report stated. “In this environment, diversification, liquidity optionality and disciplined portfolio construction will remain central to maintaining resilience.”