You should (almost certainly) own more US equities. But how? - Part 1/2

The critical thing everyone has to do when building their investment portfolio is ask themselves a question: what am I trying to achieve? If you haven’t done that, you really need to.

To the extent you’re using a financial adviser, if he/she hasn’t facilitated that conversation, I’d be asking some (maybe hard) questions about why not.

In my humble opinion, if you need or want income, an allocation to Aussie equities makes a lot of sense as an Aussie resident taxpayer. You get solid dividend income, and the benefit of the franking credit system, without some of the volatility of many international markets.

But if you’re a growth investor, Aussie equities are a sub-par option compared to a readily available option that is just as easy to trade, the same cost to trade, just as liquid, and just as transparent.

If you want strong and reliable growth, I believe it’s pretty hard to argue against buying US equities.

It’s very hard to build a performing “growth” portfolio without a meaningful allocation to US equities. Anyone who has read anything I’ve written already knows I strongly believe that, but the point of this piece is to answer some important questions on mechanics.

Let’s get started, and at the basics:

QUESTION 1: Will US equities continue to outperform in 2026?

The short answer is yes, in my view (to be clear this my personal view, not necessarily that of Koda Capital, nor that of any of my fellow Partners). That doesn’t mean we’ll keep up these 20%-plus years where everything AI-related flies, everything else does OK, and broadly markets rip.

But what it does mean is that in a world where investing is nothing if not relative, you will do better being a growth investor in the US than you will do anywhere else.

For what it's worth, in 5 of the last 8 full calendar years, the S&P 500 is up over 20%, it was up 18.4% in 2020, and markets were down the 2 other years. The index is up almost 16% year-to-date 2025, and the 15-year annualised return through 2024 is 13.9%.

My point? The S&P 500 isn’t just an AI index.

Some reasons why I still like the US market include (and you’ll notice all of these are very unlikely to turn on a dime):

• Continued Government spending – for all of the hoo-ha around DOGE and around saving the US Government money, the One Big Beautiful Bill actually spends more money next fiscal year than the US Government spent this fiscal year.

• Resilient consumers – whilst the US consumer is under strain, the broad consumer is being held up by the K-shaped economy where the top end spend like maniacs, the middle muddle along, and the bottom end struggles. It’s like having your head in the oven and your feet in a bucket of ice - on average, you’re OK.

• Resilient earnings – almost half of the S&P 500’s earnings come from outside the US. So yes, the US consumer is cooling off a little, but the emerging market consumer is not, and many other consumers are not. In 2023, the world reached 4 billion consumers for the first time, and the growth is in emerging economies. As India and China continue to add more consumers, large global US corporations have a bigger market from which to draw sales and earnings. And one thing that American companies are genuinely good at is extracting earnings from markets they’re already in.

• AI capex – the spend from large IT corporates shows very little likelihood of cooling off, for the short-term at least. It’s interesting because I keep reading that without AI, the S&P 500 would be down 10%; or that without AI, the US economy wouldn’t have grown; or that without AI, the final season of Stranger Things would have been delayed 9 months. The fact of the matter is, we DO have AI. There’s not much sense making up counter-factuals that will never happen. Instead, let’s risk-adjust the chances that AI blows up any time soon (I reckon that’s a pretty low chance), and add that to the way you evaluate investments. Then talk to your clients, construct a plan, and then build portfolios.

QUESTION 2: What portion of my portfolio should be in US equities?

What are you trying to achieve? I’m going to keep asking this because it should be central to how you build your portfolio. If you have an adviser and it isn’t central to them, ask some (maybe hard) questions about why. 

If no adviser is involved and it isn’t central for you, I would respectfully assert that you should change the way you build your portfolio, including finding an adviser for whom what you’re trying to achieve is central.

Your portfolio should have 3 pieces – core, tactical, and opportunistic.

• The core piece is aligned to your goal (that often means growth, income, or balanced), it is long term in nature, and it is diversified. Everyone has a core piece, it is the largest piece in the portfolio, and it rarely moves too much, or maybe not at all.

• The tactical piece is short-to-medium term, probably not diversified, and may or may not be aligned to your goal. Most people have a tactical piece, and it often moves.

• The opportunistic piece is the rarest and often smallest piece in portfolios, and it trades off time and liquidity for better returns in the future. It is long term in nature, and it might be diversified, it might not.

So I ask again - what are you trying to achieve? To be clear, what I’m about to say is general in nature only and it is not personal advice. Please consult a professional adviser to specifically walk through your personal situation. Now....

• If you want or need income, you should probably have a significant defensive portion (maybe 60%-ish) that pays income, and then include some Aussie equities for franked dividends (20%-ish), plus the balance in growth.

• If you want to be balanced, then you probably have less in defensive positions (40%-ish), and likely have a little more in Australian equities (40%-ish), plus the balance in growth. 

• But if you want or need growth (say you’re a mid-30s professional thinking about your super), you should be overwhelmingly in growth (80%-ish).

Most of the growth portion, whatever you figure that should be in your situation, should be US-exposed, two-thirds at least. 

The US leads in all of the areas that over the next 10 or 20 years you’re likely to see growth from - tech, healthcare, pharma, media, entertainment, finance, AI, sports, maybe even culture these days. 

The only major growing areas they don’t lead in are EVs, renewable energy, and semi-conductors. However, during the Biden Administration, Congress passed US$2 trillion of support for, you guessed it, EVs, renewable energy, and semi-conductors.

In the imminent follow-up, I’ll touch on 3 other important questions investors should consider. In the meantime...

Good luck out there.