State Street Global Advisors (SSgA), one of the world’s largest fund managers, will stay overweight in equities, but it is cautious about lingering market volatility, a company executive said Friday.

SSgA, the fund management arm of Boston-based State Street Corp., had been underweight in stocks for most of 2008, but it gradually started to raise its weighting in the asset class from around December, SSgA global chief investment officer Richard Lacaille said.

"We are overweight (in equities now) because they are fairly valued or possibly a little bit cheap," he told Reuters in an interview after a media briefing.

"They’re not as cheap as they were maybe in March 2003 before the start of the bull (market), so we are not seeing a multi-year bull market starting."

SSgA, which held around $1.4 trillion in assets under management as of December, also began to increase its weighting in emerging markets in the latter part of the January-March quarter.

The fund manager will stay underweight in fixed income in its tactical portfolios given falls in global interest rates, said Lacaille. Fund managers use their tactical portfolios to take positions across asset classes based on short-term market forecasts.

SSgA expects to see a recovery in the U.S. economy around the end of the year, but uncertainty after the financial crisis will linger, keeping share prices volatile, he said.

"We do think this year there will be quite a bit of volatility, so we have to be cautious and clients need to be careful if they have restricted amounts of capital," Lacaille said.

SSgA is underweight in core fixed income and is slightly underweight in U.S. Treasury bonds and cash. On the other hand, it is a little overweight in credit, including investment grade and high-yield bonds, in its tactical portfolios, he said.

Lacaille said at the news conference that the U.S. economy was likely to show some signs of recovery around the end of 2009 and that a broader-based global recovery may come towards mid-2010.

But global growth of around 4 percent won’t come until 2011, he said.

"Businesses are still cautious, and consumers are still affected by falling housing prices and rising unemployment," Lacaille said. (Reuters)