In 2025, financial markets navigated significant volatility, driven by geopolitical developments, international trade tensions, shifting monetary policy expectations, and technological changes.

Notably, an acceleration in interest and capital investment in artificial intelligence (AI) spurred strong equity market outperformance in the second half of 2025, supporting investor sentiment into early 2026. However, this optimism has been tempered by growing caution, as investors continue to face heightened market volatility and potential divergence across asset markets as these key themes continue to unfold. This environment raises a central question: whether investor resilience has been expressed through continued risk-taking, or through more selective and sequenced portfolio adjustment in response to rising dispersion and fragmentation.

This report examines how institutional investors and sovereign wealth funds have responded to these changing market conditions, focusing on capital flows and portfolio reallocation decisions over the past year. The research is powered by State Street’s proprietary indicators of institutional investor flows and holdings, derived from the anonymized and aggregated activity of institutional investors, representing more than US$53.8 trillion in assets.¹ This data is complemented by qualitative input from members of the International Forum of Sovereign Wealth Funds (IFSWF).