Is your global fund really a play on the US?

For much of the past two decades, the US has dominated global stock markets. The strength of the US dollar and its vast all-consuming technology companies have propelled the US to an ever-greater share of the benchmark indices. The MSCI World Index, for example, now has over 70% of its weight in US companies.

This has served investors very well. The S&P 500 has delivered an annual return of 13.7% for the past 10 years (as at mid-July), supercharged by the astonishing performances from companies such as NVIDIA Corp (NASDAQ:NVDA), Amazon.com Inc (NASDAQ:AMZN) or Alphabet Inc Class A (NASDAQ:GOOGL). However, that “exceptionalism” is being called into question as the US government adopts increasingly eccentric economic policies. Perhaps more importantly, as the US dollar declines, it acts as a headwind for non-US investors. 

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While investors may be well aware of the problem in index funds, they may be less aware of the problem in active funds. After all, active funds can, in theory, go anywhere, and are not wedded to market capitalisation constraints that bind them to US assets. The problem is that the US mega-cap technology trade has been so forceful that it has swept many active asset managers along with it.

The debate on whether investors have too much exposure to the US was covered in a recent podcast interview with James Harries of STS Global Income & Growth Trust Ord (LSE:STS).

Global funds not budging on preference for US

Morningstar data shows that allocations to the US in the IA Global sector have been coming down, but only a little. In May 2025, the average fund in the sector had 61% of its assets in the US. This is below a peak of 63.4% in January, but significantly ahead of the level of 44.3% a decade ago. The weighting to the US accelerated most during Covid and has yet to adjust.

Many of the popular global funds have even higher weightings to the US. When examining country weightings in mid-July, those with the highest allocation to the US tend to be specialist technology funds – Pictet-Security or L&G Cyber Security ETF GBP (LSE:ISPY), for example – but also many of the “best ideas” and “unconstrained” funds. These include the BlackRock Global Unconstrained Equity Fund (81%) or the Stonehage Fleming Global Best Ideas Equity fund (82%). The Morgan Stanley Global Brands and Invesco Consumer Trends funds are other examples, both with a US weighting of over 75%. Fundsmith Equity has 74% in the US. Its next largest country weighting – France – is just 9% of the portfolio.  

Gavin Haynes, investment consultant at Fairview Investing, says: “For most funds in the Investment Association (IA) global sector, they will be benchmarked to the MSCI World, which has 70%-plus in the US or the All Country World Index, which includes emerging markets but still has two-thirds in the US. That means that most funds are going to be US dominated, particularly if they’re stock-picking managers and don’t want to take too much geographic risk.”

He points out that if managers are looking for high-growth companies, the US is often the best place to find it. “It’s the same for a Terry Smith-style fund (Fundsmith). If you’re looking for the strongest global brands, US companies are likely to be at the forefront.”

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This isn’t necessarily bad. While there is plenty of debate as to whether the US is sufficiently exceptional to justify its valuations, its companies have undoubtedly delivered handsomely for investors in recent years. David Coombs, head of multi-asset investments at Rathbones, says capitalism is embedded in its culture. It has superior technology and a lack of regulation that should transcend Trump’s tariff noise. “US companies are so adaptable. The tariffs are bad news, but is it the end of US exceptionalism? That’s a leap in our view.”

However, 70% is a lot in a single country. Mark Preskett, senior investment consultant at Morningstar UK, says the group started to identify this as a major risk in the middle of last year. “It’s a risk because valuations are still high. The US is the most expensive market. There is a lot of optimism in prices and there are justified questions over whether growth can be sustained at the current levels, alongside the questions over the US dollar.”

End of US exceptionalism?

Alec Cutler, manager on the Orbis OEIC Global Balanced fund, argues that US companies may not be as exceptional in future as they have been in the past: “We think the exceptionalism comes from massive stimulus, liquidity and government debt going through the roof and, most of all the rest of the world believing it, so funnelling money into it.”

It also means that investors are missing out on the opportunities elsewhere, whether that is the growth in the European defence sector, the semiconductor supply chain in Asia, or the burgeoning consumer story in emerging markets. There are not just reasons to be fearful about the US, but also reasons to be cheerful about other countries.

It is also worth noting that a high weighting in the US has not been a prerequisite for success. In fact, the top-performing fund in the IA Global sector over the past three years – Ranmore Global Equity – has a value approach. It has just 18% of its portfolio in US equities, and within that allocation, Alphabet is the only Magnificent Seven allocation.

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Other strong performers with low weights in the US include the Ninety One Global Special Situations, another value-focused fund. It has just 10% in technology, with Meta Platforms Inc Class A (NASDAQ:META) its only large holdings in the Magnificent Seven. It has a 31% weighting to the US, a 32% underweight versus the benchmark, and a 30%-plus weighting to the more value-focused UK market. The AVI Global Special Situations fund and Jupiter Global Value Equity fund are other examples.

For many of these funds, their greatest strength has come in the down markets. Both the Ninety One and Ranmore funds delivered positive performance in the huge sell-off of 2022. That resilience has helped support their longer-term relative performance.

Haynes says that value-focused funds generally have less US exposure. “They are looking for cheaper global markets. Japan, for example, has been a key focus for value managers. It can be worth looking at a value approach to balance a more traditional growth or index allocation to US equities.” He suggests funds such as the Artemis Global Income fund (currently 24% in the US) or Schroder Global Recovery (30% in the US).

Look further afield for income

Preskett says the US is also a difficult market for global equity income managers because it has the lowest yield of any developed market, so dividend-focused funds tend to have naturally lower weightings in the US. Emerging markets and Europe have more income options for investors. He suggests the M&G Global Dividend fund, which focuses on dividend growth. The Robeco BP Global Premium, with around 30% in the US, and a strong value bias, is also highly rated by Morningstar.

He says that the US has also been a lot less dominant in the small-cap area. “A global small-cap fund, such as Henderson Global Smaller Companies, or the Vanguard Global Small-Cap Idx, will tend to have a lot less in the US. The concentration risk is far lower.”

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There is another, more nuanced question: can any other region do well if the US does badly? The famous adage is that when the US sneezes the rest of the world catches a cold. Tara Fitzpatrick, multi-asset fund manager at Schroders Investment Solutions, says: “If you have an aggressive US recession, that will have an impact on the global economy through global trade. But you don’t need the US to be firing on all cylinders for the rest of the world to do well.

“In a more moderate scenario, you can see other markets offering very compelling opportunities. Outside the US, valuations look much cheaper, you’ve also got populist policy support, which should boost nominal growth. The news around DeepSeek was a reminder that AI innovation and technology is not isolated to the US. Markets such as Taiwan, South Korea and China also play a vital role.”

The US is not a busted flush. It still has great companies doing exciting things and remains a world leader in key areas. However, its stock market is expensive and allocations look high compared to historic norms. There are also compelling reasons to look beyond the US, as other countries catch up on innovation. It may be time to restore some balance to your global portfolio.