After years of being heavily invested in US equities, investors are now increasingly open to allocating capital to global overseas stocks, according to Julian McManus of Janus Henderson Investors. The excessive concentration of holdings in the seven major US tech giants is weakening portfolio resilience to risk.
Year-to-date, the MSCI All Country World Index ex-US has risen over 8%, outperforming the S&P 500's 6.8% gain, Reuters data shows. Julian McManus, a portfolio manager at Janus Henderson, stated in an interview that the market is showing a greater willingness to increase positions in overseas equities. Driven by concerns over the dominance of the seven US tech giants, capital is beginning to diversify, reducing reliance on US stock holdings.
"Capital is clearly starting to actively deploy outside the US market," said McManus, who works in the firm's global alpha equity team. The institution managed approximately $480 billion in assets as of March 31. This shift marks a stark contrast from two years ago, when US stocks had outperformed global markets for a decade, and US financial advisors were generally reluctant to allocate to overseas assets.
McManus noted that many investors are heavily concentrated in a handful of large-cap US tech stocks, leaving portfolios vulnerable if these leaders lose momentum. "The seven giants account for nearly half of the index, and everyone is crowded into these positions. If the trend reverses, investments will inevitably suffer a major blow." He does not believe capital is fleeing the US market en masse, but the recent outperformance of overseas markets is prompting investors to reassess their global asset allocation. "It's not a stampede, and there's absolutely no sign of panic selling. It's just that people are now willing to seriously discuss global diversification."
Despite rising geopolitical uncertainty, McManus said its actual impact on capital allocation remains limited. "Policy hotspots come and go. Most financial advisors and investors are pragmatic; they follow returns and are generally not overly swayed by political factors."
Regarding specific regions and sectors, McManus is bullish on European banks, Japanese financials, select Korean and Chinese stocks, as well as the defense and healthcare sectors. European banks have seen a significant improvement in profitability, with valuations still offering upside. Japan, after decades of ultra-low interest rates, is now entering a rate-hiking cycle, which is a major boon for banks and insurers. Following a recent sharp decline, the Korean market is starting to show value. "The Korean stock market has experienced a deep correction recently, and we believe many Korean stocks now offer high investment value." He specifically cited Samsung Electronics, arguing that the market undervalues the long-term potential of its foundry business, which is not yet fully reflected in the share price.
McManus is optimistic about Chinese equities, stating that many high-quality leading companies have been oversold due to years of low market sentiment. Tencent and Contemporary Amperex Technology Co. Ltd are prime examples, with current valuations not matching their industry competitiveness.
While AI enthusiasm is high, Janus Henderson maintains valuation discipline, prioritizing investments in upstream semiconductor suppliers rather than betting on AI application companies whose winners are difficult to predict. "AI development cannot happen without semiconductors." The firm adheres to a bottom-up stock-picking approach, avoiding bets on any single industry. Looking ahead, McManus believes the market underestimates the long-term return on AI investment. "The return on invested capital for companies like Alphabet has bottomed out and surged in recent quarters, proving that large cloud players like it are already realizing tangible AI profits."
The trend towards diversification is not limited to equities. Ian Horne, Investment Director at Muzinich & Co., said that volatility driven by Federal Reserve policy and economic data is pushing investors toward global diversification, moving away from aggressive short-term trading. "Interest rate fluctuations are becoming more frequent, which requires everyone to achieve global diversification."
However, some investors remain bullish on US stocks. Polka Mishra, Chief Wealth Advisor at Javelin Wealth Management, stated that the firm continues to heavily invest in US equities, citing the resilience of the US economy, easing inflationary pressures, and the country's leading position in the AI industry. "At this stage, the US stock market has the strongest resilience. The 'US market exceptionalism' that has been repeatedly questioned over the years is continuously being validated by market performance."
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