Asset managers ended February with one of their highest portfolio allocations to US equities in 20 years, according to State Street Markets, as investors leaned on the US currency as a safe-haven during market turbulence.
The firm’s latest institutional investor indicators report shows investors de-risked portfolios in March.
“In contrast to the most recent bouts of defensive behavior, March 2026 saw investors reallocate back toward US equities, but also reduced rather than increase hedges on the USD,” the firm said in a statement.
The pullback in risk exposure over the month saw aggregate equity allocations fall by 1.6 percentage points, the sharpest monthly decline since August 2023. Despite the drop, investors remain significantly overweight equities.
Cash was the main beneficiary of the shift out of equities, rising 1 percentage point, while fixed income allocations increased by 0.6 percentage points.
“Unsurprisingly in response to the outbreak of war in the Middle East there was a substantial derisking through the month of March both across and within asset classes. Money flowed out of equities and predominantly into cash,” said Michael Metcalfe, global head of macro strategy, State Street Markets.
He said aggregate equity allocations fell by the most in more than 32 months, though the firm characterises the move as controlled de-risking rather than panic.
“Across the month the 1.6 percentage points fall in the allocation to equities was still only one third of the panic that followed the outbreak of the COVID pandemic. Within equities funds flowed back into both US and IT, countries and sectors perceived to be less exposed to the energy shock, and out of European and emerging market equities, which were more exposed.”
According to Metcalfe, the pattern is unusual, as investors typically sell their largest overweight positions after a shock, yet in this case flows returned to US equities, which remain the biggest overweight.
“The response in FX markets was also somewhat different. During the last period of protracted defensive behavior this time last year asset managers increasingly hedged their USD exposures, moving from an overweight to an underweight in the currency. The starting point in March 2026 was different.”
He said asset managers began the month with a notable underweight to the USD, but bought the currency consistently throughout March.
“This suggests that asset managers saw the US currency as a safe-haven during the market turbulence caused by the war in the Middle East; a marked contrast to the market disruptions around the Liberation Day tariffs announcements in April 2025.”
