State Street Investment Management has left the asset allocation of its ETF Model Portfolios unchanged for the 2026-27 financial year, arguing elevated trade, fiscal and geopolitical uncertainty has not been enough to warrant changes to its long-term investment strategy.
The investment manager said its outlook remained cautiously optimistic despite another year of significant economic and political developments.
Following its annual strategic asset allocation review, the firm retained the existing allocations across both its Risk-Based ETF Model Portfolios and its Target Income ETF Model Portfolios.
State Street confirmed that moderate portfolios will continue to hold 46.5 per cent in growth assets and 53.5 per cent in defensive assets, while balanced portfolios retain a 65 per cent allocation to growth assets.
Growth portfolios remain weighted 77.5 per cent towards growth assets, rising to 89 per cent for high growth portfolios.
Across all strategies, Australian and international equities remain the largest exposures, complemented by allocations to emerging markets, global infrastructure, fixed income and cash.
However, there were three asset classes which State Street said it considered for allocation but ultimately excluded: global fixed income, gold and listed real estate investment trusts (REITS).
“Global fixed income was not included in the model portfolios due to a less attractive risk–return profile relative to Australian credit and government bonds. In addition, global market dynamics—such as policy divergence across central banks and elevated bond issuance— are expected to contribute to higher volatility than is desirable within the portfolios.”
It acknowledged, within global fixed income, there were opportunities in emerging market debt and global high yield, these sub-sectors were highly sensitive to investor sentiment.
“A deterioration in investor sentiment could lead to a meaningful increase in default rates, undermining the overall risk–return trade-off.”
Meanwhile, regarding gold and domestic and global REITs, it said: “Gold was considered given ongoing inflation uncertainty and geopolitical volatility; however, it was not included as it did not meet the required criteria for inclusion based on our forward-looking forecasts.
“[Domestic and global REIT] is expected to exhibit relatively weak risk-adjusted returns over the next three to five years, and infrastructure is viewed as a more attractive alternative within the real assets allocation. Moreover, with recession risk remaining elevated over the medium term, REITs are likely to face cyclical headwinds and have historically tended to underperform broader market capitalisation benchmarks in such environments.”
Head of ETF model portfolio solutions EMEA and APAC Kathleen Gallagher said the decision reflected a disciplined approach rather than a reaction to short-term market developments.
“Following our 2026 asset allocation review, we made no changes to the positioning of the portfolios. That reflects our conviction that current allocations remain appropriate for a multi-year environment of heightened volatility.
“Our process sets a high bar for change. We only adjust allocations to asset classes where there is a clear and durable shift in long-term fundamentals.”
The firm pointed to easing inflation and a softening US labour market as supporting future interest rate cuts and global risk assets, while noting Australia’s inflation outlook remained different, with a more hawkish Reserve Bank of Australia and further rate rises becoming increasingly likely.
State Street also maintained a constructive view on global equities, arguing artificial intelligence would remain a long-term driver of productivity, capital flows and market leadership despite elevated valuations and ongoing geopolitical risks.
While periodic volatility was expected, the firm anticipated any market pullbacks would be relatively short lived.
On fixed income, the investment manager continued to favour sovereign debt over corporate bonds, citing a supportive interest rate environment and resilient economic backdrop. It said the review assessed potential changes across asset classes and market segments but found none that would materially improve overall portfolio resilience.
The firm also kept the target yield for its Target Income ETF Model Portfolio unchanged at 4.25 per cent per annum despite higher fixed income yields.
State Street said a slight reduction in dividend yield assumptions, combined with uncertainty surrounding the global economic outlook, supported maintaining the existing target rather than increasing it.
