In theory, a global equity fund should be an excellent tool for diversification across countries, sectors and currencies. With more than 40,000 stocks to choose from, active managers have plenty of opportunities to differ from their peers in the IA Global sector, which is home to over 550 funds.
Many of these funds will have a benchmark, but some managers will simply pay no attention and focus on the best opportunities. Over the past 15 years, this has resulted in a huge chunk of assets going into US equities.
Research from Morningstar from May 2025 showed the average fund in the IA Global sector had 61% of assets in the US (vs. 44% a decade earlier).
There is no doubt this has been a successful play. Driven by tech behemoths, the S&P 500 has returned almost 700% in the past 15 years, more than triple the returns of the likes of UK, European and emerging market equities.
The upshot is we now have 71.2% of the MSCI World in US equities (and a third in technology and communication services). Missing out on these exposures in recent years would have seen global funds struggle to compete with their peers in a proliferated market.
US no longer the only game in town
However, US equities have been underperforming their international peers since the start of 2025. The ‘end of US exceptionalism’ has been well touted, with capital shifting from US assets to emerging assets and Europe – opening the question of whether global funds should be following suit.
JOHCM Global Opportunities fund co-manager Ben Leyland holds around 44% in US equities in his portfolio. He said there are two fundamental changes investors have to consider. The first is the rising capital intensity of the US tech darlings – as they continue to spend more money on AI infrastructure – meaning profit/cashflow numbers are likely to be more limited.
The second is that there are now a host of other opportunities available to investors. Examples include Germany’s fiscal stimulus (something we have not seen for two decades), which should benefit wider Europe, and Japan moving into an inflationary environment, making it a more attractive investment climate. He also said places like Spain and Ireland have de-levered, having been the big crisis economies of 2011-12.
T. Rowe Price Global Focused Growth Equity portfolio specialist Daniel Hurley said his team brought down its allocation to US equities in early 2025 (currently 55%), citing the frenzy for US assets following Trump’s victory (a valuation call to lower exposure).
He said the team also felt there would be a growing valuation dispersion from the AI trade, citing the fact that only two of the Magnificent Seven outperformed in 2025.
“We think a lot of the hyper-scalers (internet companies and cloud service providers) are going to spend on capex and we want to be underweight those and overweight where the money is going to be spent, such as data centre companies and the infrastructure names – these are both in the US and overseas,” he said.
FOMO and the tyranny of the benchmark
Hurley said there are challenges to simply ignoring a big part of the market and underweighting those names to a significant degree. He said: “Your tracking error could really blow out and clients can get nervous if it goes from 8-15% and investors may simply say that is too big – there is a balance to this.”
Fidelity Global Special Situations manager Christine Baalham said momentum and benchmark sensitivity will inevitably drive flows into US AI-related names.
They have also seen how powerful narratives can shape outcomes for investors – the ‘AI loser’ narrative, for example, has weighed heavily on software and adjacent sectors, while the US mega-caps have not repeated the outsized performance seen in 2024.
She said the focus remains on fundamentals rather than narrative-driven positioning, adding that they retain exposure to select US leaders where they see durable competitive advantages and pathways to growth.
Leyland said history shows that owning sectors due to concerns over missing out can be challenging. He said: “Tech has outperformed since 2015 in different guises. Names like Microsoft and the social media businesses have been ever present in that, and it has gone on so long that they now represent a big part of the index. Some simply believe you cannot afford to not have Erling Haaland in your fantasy team.”
Leyland said US earnings have been the main driver of growth for the region above others, but this has been distorted by the Magnificent Seven – adding that the other 493 companies in the S&P 500 have no better earnings growth than other parts of the world.
However, he believes those companies have benefitted from a rising-tide-lifts-all-boat scenario in the US – meaning you are now paying a big premium for those other names.
The US still has its attractions
Perhaps the most obvious factor beneath the bare numbers is that many US companies are global revenue generators. Capital Group’s New Perspective fund’s investment director John Lamb cited names such as GE Aerospace and Visa, with revenues of 55% and 60% outside the US, as examples of this.
Lamb said New Perspective currently has around 55% in US equities, adding that although there are cracks in the US exceptionalism story, the reality is if you want to find a lot of the leading AI/tech companies, you need to look to the US.
Nutshell Growth manager Mark Ellis said many global funds are always going to have 50-70% in the US, not only because of the global nature of many US firms but also because there is far greater freedom.
He said: “We can go through the Russell 3000 and there will be hundreds of companies that we find interesting – whereas in the FTSE there might be six and a few more in Europe. But the US is a different level of depth of quality.”
It's hard to say there is a simple correct answer on this. Some funds are willing to deviate significantly from global benchmarks, while others are more benchmark aware due to the risk around significantly underweighting the big return drivers in markets. It does not mean they are not good stock pickers.
The challenge for investors is making sure they have diversification in terms of not being overexposed to single themes – like technology – if exposure is replicated across a number of their holdings.
Darius McDermott, managing director of FundCalibre and Chelsea Financial Services. The views expressed above should not be taken as investment advice.