Global equity investors are increasingly turning their attention away from the United States, despite a significant rally that has propelled Wall Street stocks to record highs. Recent data from fund-tracker EPFR, analyzed by Société Générale, indicates that investors are pouring unprecedented amounts into global equity funds that exclude US stocks, surpassing inflows into equivalent funds that include US companies.
Over the past month alone, more than $175 billion has flowed into “ex-US” global equity mutual funds and exchange-traded funds (ETFs), contrasting sharply with just over $100 billion directed towards global funds incorporating US stocks. This trend reflects a conscious effort by investors to balance their exposure to US equities with investments in other markets.
Jim Caron, Chief Investment Officer for Morgan Stanley Investment Management’s Portfolio Solutions Group, highlighted this shift: “That rebalancing is taking place. Going forward, you are going to have more globally diverse portfolios.”
Markets outside the US, notably in Europe and emerging markets, gained momentum earlier this year amid concerns over the potential implications of US President Donald Trump’s unpredictable policies. This shift in sentiment marks a departure from previous years, during which investors primarily focused on US megacap tech companies.
Caron noted that his firm had increased its investment in Europe at the start of 2025, influenced partly by changes in US administration. April saw a peak in aversion to US investments, coinciding with a sell-off following Trump’s controversial tariff announcements. Despite this, US equities have since regained traction, reaching new highs, driven by impressive earnings reports that outpace international firms.
By late September, exchange-traded products tracking US equities had attracted $431 billion in inflows, nearing the $468 billion recorded during the same period in 2024. However, a significant shift towards international diversification remains evident, with Europe particularly benefiting from these trends. By late September, Europe had secured a record $71 billion in flows to equity ETFs, a substantial increase from just $16 billion a year earlier.
Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, emphasized the ongoing desire among investors for geographical diversification: “Markets globally are reflecting this theme.” Many investors are also bringing capital back to domestic markets, evidenced by record flows into European equity ETFs, primarily from regional investors.
BlackRock’s client polling conducted in late September revealed that about a quarter of European investors plan to boost their allocations to local stocks in the coming year, while a third intend to increase their exposure to emerging markets. Conversely, only 16% expressed intentions to amplify their stake in US equities. This trend partly stems from the impact of currency fluctuations; the dollar has depreciated by 10% against a basket of other major currencies, reducing the total return for non-US investors in the S&P 500.
Alain Bokobza, head of global asset allocation at Société Générale, remarked on the growing inquiries about diversification strategies. “The mindset is clearly in that direction,” he stated. Investors are increasingly cautious about overexposing themselves to a US market that appears to be driven by a limited number of stocks. The concentration within the S&P 500 has reached historical highs, with top stocks significantly outpacing median performers, raising concerns about potential volatility.
Royal London Asset Management’s Trevor Greetham noted that his firm has reduced its US equity holdings in favor of more reasonably priced opportunities within the UK market, citing heightened country-specific risks associated with a second Trump presidency, particularly concerning valuations.
Nevertheless, investors seeking alternatives outside the US encounter challenges in identifying suitable markets. Kenneth Lamont, Principal for Research at Morningstar, posed the question, “Where else, frankly?” while acknowledging that the US remains the most vibrant and dynamic market globally, despite the disruptions it faces.
Caron cautioned about the limitations of broad index plays in Europe, highlighting the concentration of opportunities within specific sectors. According to Goldman Sachs, a select group of stocks, dubbed the “German Mag 7,” has contributed significantly to the rise of Germany’s DAX index this year, demonstrating the necessity for investors to exercise caution and discernment in their strategies.
