The gospel of diversification is simple: vary your exposure and it’s unlikely everything will fail at the same time.
You only have to look at the pain investors in UK equities have faced in the decade since Brexit arrived and decided to cloud the UK economy. Brexit created a “UK discount” relative to its global peers amid concerns over weaker trades, sluggish growth and repeated political crisis.
This has also come at a time when the sectors UK plc has thrived in historically – the likes of banks, oil & gas mining, tobacco and consumer staples – underperformed as large-cap technology stocks produced unprecedented growth. Some estimates says as much £120 billion has been pulled from UK equity funds between Brexit and the end of 2025*.
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This brings us to global equities, which are often seen as a one-stop shop for investors who don’t want to have to worry about deciding geographical allocations in their portfolios. With more than 41,000 stocks listed on stock exchanges worldwide, the opportunity set is both vast and complicated – making it the ideal place for an active manager to flourish.
Many true active managers will not pay any attention to the benchmark and will simply invest where they find the best opportunities, regardless of where a company is listed. At times this could mean an even larger weighting to the US (71.9% of the MSCI World index is invested is in US companies)**, or indeed being significantly overweight or underweight other countries. If the manager picks the right companies, the fund may perform well even when broader markets are facing challenges.
The rationale for diversification is clear – domestic equities tend to be more exposed to the narrower economic and market forces of their home market, while stocks outside an investor’s home market tend to offer exposure to a wider array of economic and market forces. These differing economies and markets produce returns that can vary from those of an investor’s home market.
How have global equities performed?
There are now over 600 funds to choose from in the IA Global sector. It’s a bit like Noah’s Ark, with funds targeting completely different goals within the same market. The average fund in the sector has returned 197% to investors, more than double the likes of sectors in the UK (IA UK All Companies 92% and IA UK Equity Income 96%) over the past decade***.
As mentioned, a lot of this performance disparity is attributable to the tech behemoths in the market under their various guises – be it the FAANGs (Meta, Amazon, Apple, Netflix or Alphabet) or more recently the Magnificent Seven (Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla). This is reflected by the dominance of US equities in the past decade, with the S&P 500 having returned some 341%, double the likes of UK, European and Emerging Market equities***.
But things are starting to change – so should we be looking at new approaches to global equities?
However, US equities have been underperforming their international peers since the start of 2025. The “end of US exceptionalism” has been well touted, with capital shifting from US assets to emerging assets and Europe – opening the question of whether global funds should be following suit.
JOHCM Global Opportunities fund co-manager Ben Leyland holds around 43% in US equities in his portfolio****. He says there are two fundamental changes investors have to consider. The first is the rising capital intensity of the US tech darlings – as they continue to spend more money on AI infrastructure – meaning profit/cashflow numbers are likely to be more limited.
Ben says US earnings has been the main driver of growth for the region above others, but this has been distorted by the Magnificent Seven (Mag 7) – adding that the other 493 companies in the S&P 500 have no better earnings growth than other parts of the world. However, he believes those companies have benefitted from a rising-tide-lifts-all-boats scenario in the US – meaning you are now paying a big premium for those other names.
The second is that there are now a host of other opportunities available to investors. Examples include Germany’s fiscal stimulus (something we have not seen for two decades), which should benefit wider Europe, and Japan moving into an inflationary environment, making it a more attractive investment climate.
T. Rowe Price Global Focused Growth Equity portfolio specialist Daniel Hurley says they brought down their allocation to US equities in early 2025 (currently 58%)****, citing the frenzy for US assets following Trump’s victory (a valuation call to lower exposure). He says the team also felt there would be a growing valuation dispersion from the AI trade, citing the fact that only two of the Mag 7 outperformed in 2025.
US and tech/AI will always be a part of many global funds
Fidelity Global Special Situations manager Christine Baalham says momentum and benchmark sensitivity will inevitably drive flows into US AI-related names. They have also seen how powerful narratives can shape outcomes for investors — the “AI loser” narrative, for example, has weighed heavily on software and adjacent sectors, while the US mega-caps have not repeated the outsized performance seen in 2024.
Perhaps the most obvious factor beneath the bare numbers is that many US companies are global revenue generators. John Lamb, investment director of Capital Group, which runs the Capital Group New Perspective fund, cites names like GE Aerospace and Visa, with revenues of 55% and 60% outside the US, as examples of this.
John says New Perspective currently has around 55% in US equities, adding that while there are cracks in the US exceptionalism story – the reality is if you want to find a lot of the leading AI/tech companies it means you must go to the US.
The truth is that with over 600 funds to consider, there are many ways to approach global equities as an investor – you can even combine strategies with each other to make sure you gain exposure to several themes.
Here are a few funds investors may want to consider:
Fully flexible approach – BlackRock Global Unconstrained Equity
This is a concentrated, high-conviction fund, targeting extraordinary companies across developed markets. It takes a long-term approach which filters out short-term noise in the marketplace. Although relatively new, it is backed by some of the most experienced and top-performing equity managers of the past decade.
The defensive diversifier – Jupiter Merian Global Equity Absolute Return
This fund has historically enjoyed a low correlation both to global equities and to global bonds – making it an ideal diversifier. Jupiter Merian Global Equity Absolute Return is a long/short equity absolute return fund. It targets an absolute return over rolling 12-month periods. The fund’s philosophy is that markets are not fully efficient due to several investor behavioural and psychological biases.
Avoiding behavioural bias – Lazard Global Equity Franchise
This fund looks for companies that have an edge in their respective business sectors and is differentiated by the managers’ systematic approach to portfolio construction, which means that behavioural biases should be removed. As a result, the portfolio looks very different to many peers with none of the large tech companies present in the top ten holdings****.
Backing quality names – Morgan Stanley Global Brands
The investment team behind Morgan Stanley Global Brands have a mantra: ‘don’t lose money’, which will possibly be as comforting to investors as the familiar names that can be found in the portfolio. The fund is a very concentrated portfolio of high-quality global companies. The criteria the team looks for to define a quality company are features such as intangibles assets – like strong network benefits and brands or licenses and permits that can provide an advantage over competitors. Names in the top ten currently includes Coca Cola, Netflix and L’Oréal****.
