More global investors are rotating into non-U.S. “value” stocks, fund managers say, as stretched U.S. valuations, rising fiscal strains, and weakening cash flow forecasts make rallying American equities look comparatively less attractive.
Investors have withdrawn US$152 billion from U.S. growth funds in the first nine months of 2025, even as the S&P 500 advanced into record high territory, already equaling total outflows for all of 2024, LSEG data for September showed.
Asset managers overseeing more than $6 trillion told the Reuters Global Markets Forum that investors expect non-U.S. “value” and small-cap equities to benefit from overseas dovish monetary policy, increased fiscal stimulus, and cheaper valuations.
Outside the U.S., stronger earnings, margins and returns highlight underappreciated fundamentals in small-cap and value stocks alongside already attractive valuations.
“From a valuation perspective, we like non-U.S. value stocks – so yes, a factor tilt,” Sebastien Page, head of global multi-asset and chief investment advisor at T. Rowe Price told the Reuters Global Markets Forum. The global investment management firm oversees $1.73 trillion in assets, with Sebastien’s multi-asset division accounting for $602 billion.
Value stocks appeal to investors seeking stability and income because they trade at low valuations, often pay dividends, and cluster in mature sectors like financials, industrials, and energy.
By contrast, growth stocks, including the “Magnificent Seven” and other AI-driven giants that have propelled the S&P 500 to record highs, trade at rich valuations, rarely pay dividends, and appeal to investors who are willing to weather short-term volatility in the search for long-term capital gains.
Spreads between value and growth in the MSCI Europe, Australasia and Far East (EAFE) indices point to cumulative outperformance by value, with index levels at record highs, according to MSCI data.
“EAFE Value, especially in dollar terms, has been one of the best-performing asset classes year-to-date. At the same time, by historical standards, the asset class remains cheap,” Page said.
Growth and value factors diverge by region: growth has historically led in the U.S., while value has dominated overseas.
“At the end of last year, we diversified away from our long U.S. equity position” into Europe, Japan and emerging markets (EM), said John O’Toole, global head of multi-asset solutions at Amundi.
“That’s not to say we went underweight (on U.S. equities),” O’Toole said, but on long-term valuations, “there’s a compelling case to diversify and expose yourself to other performance drivers.”
Even so, U.S. growth funds continued to dominate performance despite heavy redemptions, as the earnings strength of tech and communication giants, buoyed by artificial intelligence and buybacks, keeps growth in the lead.
Spreads between value and growth in the MSCI USA indices point to continued growth outperformance, MSCI data showed.
“In the near term, companies have limited options to hedge against U.S. concentration risk, as U.S. AI capex still dwarfs the rest of the world,” said Gary Tan, portfolio manager at Allspring Global Investments.
Reporting by Mehnaz Yasmin in Bengaluru; Additional reporting by Ankika Biswas and Ankita Yadav; Editing by Divya Chowdhury, Alden Bentley and David Gregorio, Reuters