Is your portfolio too US-centric?

Chances are, if I took a glance at any reader’s portfolio right now, I’d find the international exposure heavily dominated by the US. It’s a fair assumption - after all, US equities represent over 70% of the MSCI World Index, but more significantly, have over half of the world’s largest companies representing $US31.17tr in market capitalisation.

For years now, US exceptionalism has been fact. 

The Magnificent Seven only adds to the story. But, change is afoot – and it’s not just fatigue from trying to keep up with the US President’s more than 6,000 annual tweets (though his curveball policies have certainly created a ride in the last year).

Is US exceptionalism finally over? And should you be moving your portfolio elsewhere?

Last year, Neuberger Berman’s Joseph Amato argued that the US would continue to be dominant over the world economy but that exceptionalism in terms of cyclical market performance was at an end.

Only last week in this article for Livewire, Antipodes’ Jacob Mitchell discussed his views of a structural change in markets where investment-oriented businesses will be better rewarded than consumption-oriented, meaning that there will be outperformance of stocks outside the US mega-cap tech sector.

Also last week, Lazard’s Ron Temple shared his concerns over tech concentration in US stock markets and noted more predictable growth drivers at lower valuations outside of the US and particularly in emerging markets.

While this may all sound a bit concerning, now is not necessarily the time to pull all your exposure from the US. To that end, I spoke to two financial advisers and an international shares fund manager on how they were managing the risks in the US market today.

• Gareth Brown, Portfolio Manager, Forager Funds Management
• Jackson Raddysh, Financial Adviser, Prime Advisory
• Roger Perrett, Partner and Founder, Freshwater Wealth

Beyond the noise and what to actually worry about

“There is always plenty to worry about. Productive worry, however, should centre on valuation,” Brown says.

Both Perrett and Raddysh agree, with Raddysh reminding investors that, as much as political noise may worry investors, “the stock market is not the economy, nor is it politics”.

Perrett notes his top three concerns at this point, only two being exclusive to the US, are, “valuations, AI misallocations (particularly with SaaS companies) and geopolitical risks.”

US markets have hit record highs multiple times in the last few years, and tech mega-caps are sitting on premium valuations. On average, US companies have been sitting on elevated multiples compared to long-term averages, and the market has been trading at a significant premium compared to other developed markets since late 2024.

“High starting valuations, and extreme stock-based compensation in some sectors, were often overlooked because the US had been 'working well' for investors. But investors are better served focusing on the windshield, not the rear-view mirror,” Brown says.

Brown looks for mispriced opportunities and has found good hunting grounds in Europe, the US and Japan in recent years. Ironically, he highlights that he is starting to see more reasonably priced US opportunities appear today, compared to 2024 or 2025, as part of shifting sentiment towards the US.

“In the search for bargains, we believe it pays to look where pessimism is greatest, not where optimism is most entrenched. In recent years, that has meant spending more time outside the US, although that’s changing right at the moment,” Brown adds.

Following valuation concerns, there is growing concern over AI spend and activity.

For Raddysh, the concept of a bubble comes up with clients regularly.

“A lot of these companies are diversified in their operations. They have high quality earnings, and even though they’re investing a lot into the AI space at the moment (which isn’t in aggregate profitable), these companies are still profitable,” he says, explaining he still sees value in holding these companies at this stage.

Following the AI trend, there has been a significant sell-off in SaaS companies in the past six months, off concerns that AI can replace these businesses.

Interestingly, Brown comments that, while Forager didn’t have meaningful exposure when valuations were at extremes, this sell off has made it more attractive.

(Exposure) to US, or not to US

You won’t find any of the three interviewed for this article telling you to avoid the US – but rather consider diversification and recognise broader opportunities beyond the US market to reduce your risks of concentration.

“It’s hard to go past the US. They have an extraordinary capacity for innovation and earnings,” says Perrett, noting that his client strategies are neutral on the US currently.

Brown agrees, describing it as “the most dynamic, shareholder-focused and technology-heavy market in the world.”

To factor global risks (as well as high valuations in US large-caps), Perrett has shifted allocations in his clients’ portfolios towards global small caps, which are trading at attractive valuations compared to large caps. He has a moderate overweight position in emerging markets too, viewing Asian markets as a strong beneficiary of AI activity.

Raddysh has also rebalanced his clients’ portfolios, with tactical shifts towards markets with a focus on growth-at-a-reasonable-price, such as Europe and some emerging market regions.

He suggests an optimal US allocation in a high-growth portfolio might range between 40-50% of the international exposure in a portfolio today, as it still makes sense to have a larger allocation to the biggest and most liquid market in the world.

The Forager International Shares Fund holds a 40.4% allocation towards US equities, with 36.6% of the fund directed towards UK and Europe. This is worth highlighting when you consider index fund concentrations to the US and that many active fund managers have allocations towards the US of upwards of 50% of their portfolios.

Brown notes that this is a function of Forager’s approach to finding mispriced opportunities, which you typically don’t find in more optimistic countries. Hence, he has been able to find more opportunities in Europe, the UK and Japan in recent years.

“A meaningful portion of our investments in Europe and the UK are in genuinely global businesses – Wise and MTU Aero Engines are two of the larger current holdings. By contrast, our US exposure tends to be more domestically oriented,” Brown says.

A very recent example of Brown’s approach is a new position in UK business, Auto Trader Group (a similarly structured business to carsales.com.au). It has been held in the past in Forager’s portfolio at various points in time.

It was a recent victim of concerns that AI could take its position and prices fell more than 40%. Brown believes AI risks – though real – are overstated.

“If our analysis is correct, the business could generate its entire current market capitalisation in free cashflow over the next decade, and return all of it to shareholders,” Brown explains.

It’s a reminder that the US is not the sole domain of high-quality businesses with the potential for compounding growth.

Are you too US-centric?

While sentiment towards the US is shifting, the US remains an important part of your portfolio – but it shouldn’t necessarily be your only international exposure. You can’t assume that the US will continue to offer all you need in terms of performance, particularly if you are heavily leveraged to mega-cap tech.

High valuations and shifting market dynamics may see better opportunities and outperformance outside of the US, and particularly beyond the tech space – active investing means being flexible and adjusting for this.

The lesson for investors is to go back to the basics of investing. Look to the fundamentals and consider valuations. Remember diversification and spread your risks. And to requote Brown, focus “on the windshield, not the rear-view mirror.”