Key Moments
- Citi keeps an overall overweight stance on equities while shifting a portion of U.S. exposure into small caps.
- The bank maintains a credit underweight and duration overweight to hedge potential AI-related market disruptions.
- Citi downgrades technology and consumer discretionary while upgrading industrials and moderating its China and U.K. equity views.
Strategic Allocation Under a “Goldilocks” Outlook
Investing.com — Citi is revising its global asset allocation framework as its economists’ “Goldilocks view” remains intact, sustaining a constructive stance on equities but leading to significant regional and sector shifts.
In the firm’s February 2026 House Views note, Citi analyst Dirk Willer wrote that liquidity “likely remains plentiful, favoring risky assets,” while emphasizing that growing worries around artificial intelligence warrant the retention of certain hedges.
To mitigate those risks, Citi has configured portfolios with “a credit underweight, as well as a duration overweight,” contending that U.S. interest rates “will work as a hedge against a bursting AI bubble or against an AI-driven labor market dislocation.” Willer also remarked that, in this backdrop, “risk-parity portfolios may be rehabilitated.”
Equities: Maintaining Overweight, Rotating Within Regions
Citi continues to favor equities overall but is adjusting regional exposures, particularly in the United States. The firm plans to “move half of the US allocation into small caps,” expanding the equity base beyond the largest technology companies.
The bank remains overweight U.S. and Japanese equities, while paring back positions in other markets. Citi indicated it will “cut China” and simultaneously lessen its bearish stance on the U.K. by reducing its underweight there to 50 percent.
| Region | Stated Position/Change |
|---|---|
| United States | Remain overweight; shift half of allocation into small caps |
| Japan | Remain overweight |
| China | “Cut China” |
| United Kingdom | Reduce underweight to 50 percent |
Sector Rotation: Away from Megacap Growth
At the sector level, Citi is moving to diversify away from the concentrated megacap growth trade. The bank stated it will lower its view on technology to neutral and shift consumer discretionary to underweight.
In contrast, it is turning more positive on economically sensitive areas, upgrading industrials to overweight and raising materials to a neutral stance.
| Sector | New Stance |
|---|---|
| Technology | Downgraded to neutral |
| Consumer Discretionary | Downgraded to underweight |
| Industrials | Upgraded to overweight |
| Materials | Moved to neutral |
Credit and Commodities: Defensive Tilt and Profit-Taking
Beyond equities, Citi is holding an underweight position in credit, consistent with its broader hedging strategy supported by higher duration exposure.
In commodities, the bank has adopted a more even-handed posture. It reported taking profits in base metals and currently maintains a neutral stance on both precious metals and energy.
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