The appropriate level of exposure to the US has been front of mind for many asset allocators over the course of 2025.
According to the latest figures from the Investment Association, North American funds saw net retail outflows of £91m in August.
This pales into insignificance compared to UK equities, which saw £841m heading for the door. But, following on the heels of the £270m in outflows experienced in July, it would seem that appetite for US equities is diminishing among UK investors.
This echoes the view that we have held for some time: the US may have had it too good for too long.
In eight out of the last 10 years, the best returns globally have been generated in the US, and while investors have no doubt historically benefited from exposure to US equities, talk of peak exuberance among US consumers gives good reason to exercise caution.
Instead, we prefer not to be so concentrated on a market that may be highly-functioning, but is nonetheless led by a small group of names.
This underlines our belief in the importance of diversification across regional exposures and types of assets, to include strategies that could broadly be termed alternatives.
Where else to look
For those seeking to diversify away from US equities, other markets are looking compelling.
In local currency terms, emerging markets have performed very strongly this year due in part to the weakness of the US dollar, as has Asia.
Closer to home, the UK has also proven its place in a portfolio, having delivered double-digit returns year to date.
A particularly influential event is looming in the UK at the end of November in the shape of the Budget
And, while there are risks involved in being underweight US, it is important not to let that detract from the role other equity markets can play in a diversified portfolio.
Turning to fixed-income markets, the yield on ten-year gilts stands broadly at the same level today as it did at the beginning of the year.
However, this masks the considerable level of volatility gilts have experienced in the intervening period and they have been heavily buffeted by the various data points that have emerged.
Indeed, a particularly influential event is looming in the UK at the end of November in the shape of the Budget, and it is entirely possible that bond markets dictate the extent to which the government can act to address its fiscal commitments.
As recent years have shown, equities and bonds can move together reducing their diversification benefits
Away from treasuries, spreads in credit markets have been relatively tight and it is becoming increasingly evident that now is not the time to seek passive bond exposure.
Investors, instead, should have a broader, global mindset when seeking the diversification benefits that fixed income can bring and favour strategies that have the flexibility to exploit opportunities where they arise.
As recent years have shown, equities and bonds can move together reducing their diversification benefits, so taking a fuller, more rounded approach is key.
Alternatives can bring additional ballast to a diversified portfolio by introducing strategies that offer a different returns profile to mainstream bond and equities offerings.
It is the blend that is important, with each underlying element bringing differing, complementary characteristics
From a fixed-income perspective, this might include sub-sectors such as emerging market debt, high yield, asset backed securities and floating rate notes.
Other areas of interest include gold and other commodities, which have generally performed strongly this year, and certain absolute return, long short strategies.
Ultimately, it is the blend that is important, with each underlying element bringing differing, complementary characteristics and risk premia to add further breadth and depth to a portfolio.
Fundamentally, we believe it is essential to be fixed on a long-term view.
While it may be appropriate to tweak portfolios as opportunities arise, by constructing a robust, diversified portfolio, investors have the best chance of achieving a smoothed investment profile suited to meet their long-term objectives.
Chris Fleming is deputy chief investment officer of Titan Square Mile
