In today's volatile market environment, investors are grappling with unprecedented challenges and opportunities. The global economy is marked by geopolitical tensions, fluctuating inflation rates and rapid technological advancements.

Amidst this backdrop, the recent State Street panel discussion at Salone Del Risparmio, Italy’s largest asset manager conference, focused on the future of investing in times of uncertainty. The panel was moderated by Denis Dollaku, country head, Italy and head of Business, State Street Bank International, and comprised experts including Marija Veitmane, head of Equity Research at State Street Markets, Matteo Andreetto, European head of Intermediary Client Coverage at State Street Investment Management, and Keng Goh, senior quantitative researcher at State Street Associates.

Here are five key takeaways from their discussion:
 

1. ETF trends and strategic asset allocation

Matteo Andreetto highlighted ETF investments in Europe, noting that 2024 was a record year with US$270 billion entering the sector – and US$90 billion in the first quarter alone.¹ Despite ongoing geopolitical tensions, equity products – especially global equities – have seen significant inflows. In contrast, US equity ETFs experienced slight outflows, indicating a strategic rebalance toward European equities.

Active ETFs: Active ETFs are rapidly gaining traction in Europe, driven by a generational wealth transfer and the growing familiarity of millennials and Gen Z with ETF investment vehicles. In response, traditional active managers are launching ETFs to address this new generation of investors. However, not all will thrive – success in the ETF industry requires navigating the complexities of managing ETFs, including liquidity and fast-moving market dynamics.

Defensive positions: Investors are steadily adopting a more defensive position, boosting allocations to European equities and banks. This shift reflects a cautious approach in response to market uncertainties – and a search for relative stability.
 

2. AI and market projections

Keng Goh emphasized the role of AI in navigating market uncertainties.

AI’s momentum: AI models have been instrumental in making economic projections and identifying emerging market risks and opportunities. The combination of AI and human qualitative assessment has proven effective in improving market forecasts.

AI in asset management: While AI brings greater efficiency and better output to asset management, it also introduces challenges around data privacy and security. At the same time, its ability to surface new and emerging market risks enables investors to manage uncertainty effectively and uncover new opportunities.

Generative AI (GenAI): GenAI can make connections across disparate areas, unearthing opportunities that traditional methods might otherwise miss. It can also aggregate and analyze vast amounts of media content to highlight emerging threats and opportunities, helping investors stay ahead of market trends.
 

3. Inflation and economic data

The panel also touched on inflation concerns and the potential for stagflation.

Real-time inflation tracking: Innovative tools – like daily online inflation measures – help track inflation trends in real-time, providing valuable insights for investment decisions.

Stagflation concerns: The panel discussed the potential for stagflation, but so far, retailers have not significantly raised prices, and US consumer health remains stable.
 

4. Institutional investor behavior

Marija Veitmane discussed how institutional investors have been reacting to uncertain market conditions. Despite the initial bullish stance on US equities, particularly in the tech sector, there has been a shift toward more defensive positions.

Defensive positions: In the light of persistent market uncertainty, institutional investors are adopting a more cautious stance. There’s a clear tilt toward defensive positioning, marked by growing allocations to European equities and banks. This shift reflects a preference for resilience and relative stability as investors navigate an unpredictable macroeconomic environment.

Strategic rebalancing: A broader trend is emerging as investors recalibrate portfolios, moving away from the concentrated exposure in US tech stocks to European banks. This signals a deliberate shift to lower-volatility assets, illustrating strategic rebalancing to manage risk while awaiting clearer economic signals.
 

5. Opportunities and challenges

The discussion concluded with a focus on the opportunities and challenges for investors. Panelists highlighted the importance of diversification and the potential for new investment opportunities in sectors like technology and European banks. They also stressed the need for investor education to navigate the complex market environment.

Investment opportunities: Denis Dollaku summarized the panel by highlighting the importance of diversification, with opportunities in sectors like technology, European banks and defensive markets such as the United Kingdom and Switzerland. Companies with consistent cash flow and higher dividends, known as “dividend aristocrats,” represent a good opportunity for diversification and stable returns.

Challenges: Denis also emphasized that the market's reaction to geopolitical tensions has been mixed, with investors adopting a "wait-and-see" approach. He concluded by stressing the importance of investor education in navigating market uncertainties, and leveraging the various tools and instruments available.
 

Innovative solutions and strategic presence: The State Street edge

The panel at Salone Del Risparmio provided valuable insights into the current market dynamics and the strategies investors can adopt to manage uncertainty. The emphasis on ETFs, AI and real-time economic data underscores the crucial role of leveraging advanced tools and diversified approaches in making informed investment decisions.

State Street offers a comprehensive suite of services designed to help European asset managers navigate market complexities, deepen investor engagement and leverage emerging opportunities in the shifting financial landscape. By combining advanced technology, real-time intelligence and innovative solutions – along with our strategic presence in key investment hubs – we deliver the precision and agility today’s market demands. Our commitment to tailored partnerships and deep understanding of the financial markets helps asset managers lead, innovate and grow in an ever-evolving marketing environment.

Explore how our expert solutions can empower you to confidently navigate today’s markets.