State Street steady on ETF settings despite volatility

Mike Taylor

Managing Editor/Publisher, Financial Newswire

2 July 2025

Despite continuing geopolitical uncertainty and market volatility State Street Investment Management has opted not to significantly alter the settings on its exchange traded funds (ETFs) model portfolios.

The company has justified its approach by stating that, despite market ups and downs over the past year, the global economic outlook has remained broadly consistent.

Releasing its annual review, State Street IM said that “given the similarity in macroeconomic conditions to the previous year, no large-scale changes were warranted.

“Despite market ups and downs over the past year, the global economic outlook has remained broadly consistent. We’ve continued along a path of slowing growth and easing inflation, which is expected to pave the way for interest rate cuts,” it said.

“While a soft landing — avoiding recession — has remained our base case, it has faced headwinds, particularly from tariff threats under the current US administration. With those risks now easing due to ongoing negotiations, we remain cautiously optimistic about the near-term outlook, supported by a gradual rate-cutting cycle.”

“Looking to the medium term, we remain mindful of several risks that could challenge global growth and increase market volatility. These include the sharp — but ultimately unsustainable — rise in global government debt levels; and the escalation of geopolitical tensions that are disrupting long-standing norms,” State Street said.

“How the current trade tensions get resolved will be key to how these risks evolve. Offsetting these concerns is the potential for enhanced productivity driven by the continued development and adoption of AI.

“From an asset class perspective, we continue to believe that fixed income is attractively positioned to perform as the rate cutting cycle continues. With a diminished equity-risk premium and elevated bond yields, investors are under less pressure to pursue higher-risk strategies to meet their portfolio objectives.

“The aforementioned risks and slower economic growth dampens the outlook for broad based equity allocation in 2025. In this environment of heightened volatility, we favour equity exposures that emphasise quality and low volatility characteristics.”

State Street said it had evaluated several new asset classes and segments that had the potential to enhance the portfolios’ ability to navigate market volatility.

“However, these options did not offer sufficient improvement in risk-return characteristics to justify changes to the current allocation,” it said.