Global equity investors are diversifying their portfolios away from the US despite a dramatic rally carrying Wall Street stocks to a string of record highs, fund flows data shows.
Investors are pouring record amounts into global equity funds that specifically exclude the US, according to analysis of data from fund-tracker EPFR by Société Générale — more than is going into equivalent global funds that include US stocks.
Wall Street has roared back from its lows in April and shows no sign of losing its appeal to global investors. But the fund flows data, as a snapshot of broader market behaviour, shows that investors are increasingly seeking to balance their US exposure with investments elsewhere.
“That rebalancing is taking place,” said Jim Caron, chief investment officer for Morgan Stanley Investment Management’s Portfolio Solutions Group. “Going forward, you are going to have more globally diverse portfolios.”
The most recent available data shows investors putting more than $175bn into “ex-US” global equity mutual funds and exchange traded funds over the past month, compared with just over $100bn into global funds that include US stocks.
Stock markets outside the US — particularly in Europe and emerging markets — powered ahead of Wall Street early this year, as fears grew about the potential fallout from US President Donald Trump’s erratic policymaking. This marked a big shift from previous years, when many investors saw US megacap tech companies as the only game in town.
“We went overweight Europe in our portfolio for the first time” at the start of 2025, Caron said. “Part of that had to do with the change in [the US] administration.”
Investors’ aversion to US risk peaked in April, with the sell-off that followed Trump’s “liberation day” tariff announcements.
Since then, however, US equities have caught up with other markets, with prices hitting a string of record highs as investors turned their attention to the exceptional earnings of US companies compared with international peers. Exchange traded products (ETPs) tracking US equities had taken in $431bn by late September according to BlackRock — not far off the $468bn recorded over the same period in 2024. September was the biggest month of the year so far for US inflows.
Nevertheless, a shift has occurred at the margin, with global investors still looking for diversification in their portfolios as a counterweight to their exposure to US stocks.
Europe has been a big beneficiary, racking up a record $71bn in flows to equity ETPs by late September, compared with just $16bn at the same point last year, according to BlackRock.
“In the back of most people’s head there is still the desire to diversify internationally,” said Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs. “Investors are diversifying, and markets globally are reflecting this theme.”
For many investors, geographical diversification has meant bringing some money home to domestic markets. There have been record flows into ETPs tracking European equities this year, largely from the region’s own investors, according to BlackRock.
“We have seen a clear home market bias this year,” said Karim Chedid, head of investment strategy for Europe, the Middle East and Africa at BlackRock.
BlackRock’s client polling in late September showed that around a quarter of the region’s investors intended to increase their allocations to European stocks over the following year, and a third planned to raise their emerging market equity allocations. Only 16 per cent said they would increase their exposure to US equities.
This repatriation in part reflects the currency hit that non-US investors have taken this year. The value of the dollar has fallen 10 per cent against a basket of peer currencies, slashing the total return of the S&P 500 in the year to date from almost 16 per cent for dollar investors to just 3.3 per cent for euro investors.
“We are not negative on US equities . . . but if the US dollar continues to fall, the total return is less impressive,” said Alain Bokobza, head of global asset allocation at Société Générale. He said he was “very confident” that the greenback would fall further.
Bokobza said he had “never taken as many questions in the US and Asia about the need for diversification” in conversations with clients. “The mindset is clearly in that direction.”
Investors are wary of being overexposed to a US equity market that is increasingly driven by only a few stocks. Concentration in the S&P 500 — measured by the average market value of the top 10 per cent of stocks compared with that of the median stock — has reached a record high.
Trevor Greetham, multi-asset portfolio manager at UK-based Royal London Asset Management, said his firm had reduced its US equity allocation over the summer, moving into the “more reasonably priced” UK market.
“Country-specific risk under the second Trump presidency has risen significantly,” Greetham said. In particular, he added, “high valuations are a major headwind” in the US.
But investors looking for opportunities outside the US face challenges. “There’s an element of, where else, frankly?” said Kenneth Lamont, principal for research at Morningstar.
“The US is still the deepest, most dynamic market in the world,” he said. “Disruption in the US hasn’t made Europe the best investment in the world.”
Jim Caron at MSIM said that while Europe was a big, liquid market, it was also “idiosyncratic”, with opportunities limited to a few companies.
“The index is not the best way to play it,” he said.
Analysis by Goldman Sachs showed that the “German Mag 7” — a collection of defence and financial stocks — has contributed to almost half of the 24 per cent surge in the country’s Dax index this year.
“These are good ideas but we have to be really careful,” said Caron.