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CAUTIOUS RISK-ON: BIG FUNDS CREEP BACK IN

The world's largest asset allocators are tiptoeing back into risk assets, drawn by artificial intelligence optimism and resilient corporate earnings even as geopolitical tensions and inflation fears keep them from going all-in, according to a Citi survey of 19 major fund managers overseeing more than $20 trillion in assets.

The shift is selective. After trimming positions last month, managers have added to equities in the United States and emerging markets, while also lifting small-cap exposure. Europe, by contrast, has moved further into underweight territory as policy divergence widens and growth concerns linger.

"Managers continue to pay close attention to geopolitics but believe that strong earnings, AI investment cycle, and resilient global economy provide enough reasoning for a selective risk-on," Citi analysts led by Alex Saunders wrote.

On the rates side, managers increased bond overweights outside the United States, with UK gilts now leading. U.S. Treasuries remain the most consensus short position across the sample, a stance that has only deepened in recent weeks.

Gold holds its place as the most crowded long trade, even as its price action has disappointed. Managers cite portfolio diversification and central bank demand as the primary rationale for holding on. Energy has quietly gained favour, while base metals allocations were trimmed.

In currencies, the dollar underweight has been pared back further, though emerging market currencies remain the preferred long. Cash positions were cut, reinforcing the broader risk-on tilt.

The overarching message from allocators: the worst of the geopolitical shock may have passed, but sticky inflation and policy divergence mean this is no time for complacency.

(Karen Brettell)

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