2 months ago • 2 mins
Fund managers around the world appear to be taking a cautious approach to the US economy, according to Copley Fund Research. Its monthly study of actively managed global equity funds shows how much money the world’s fund managers are allocating to the US relative to the MSCI All-Country benchmark – represented by the SPDR MSCI All World ETF. And at nearly 8% underweight, the allocation to the US is at a 10-year low.
The first thing to note is that pro fund managers running global equity portfolios have tended to shy away from the US anyway. That’s mostly because they think the US is more expensive than other markets. (And, sure, it is, but it has also delivered better returns.)
The second thing is that the relative weight to the US has trended downwards – and, again, mostly because the US has outperformed other markets and become more expensive. But there’s something else going on here too. See, in the US stock market, over the past ten years, growth stocks – that’s the most expensive shares of firms with fast-growing sales – have outperformed their value cousins – cheaper stocks of slower-growing companies. And that’s just made the US even pricier, compared to other markets.
But take another look at the chart; there have been two brief periods where global portfolio managers quickly closed their underweight positions and piled into US stocks – the first half of 2016 and again from September 2020 (green arrows). Now, both of those periods were characterized by a dramatic run of value stock outperformance. Global portfolio managers, then, appear to prefer the value side of the US market to the growth, and when they see value stocks leading, they quickly add to their US positions and close that underweight.
With the likes of Nvidia and other AI-related tech elites leading the US stock market this year, it’s been another year of growth stock outperformance so far. That could continue, of course, but, on the other hand, if value stocks were suddenly to take the leadership baton, you could expect global fund managers to pounce, turbocharging those value stocks. Now, just because growth stocks have outperformed recently and global fund pros are at a record underweight, that doesn’t guarantee that value stocks are about to have a run of outperformance. But investing is an odds game. And if you stack those two factors together, it at least improves the probability of a run of value outperformance.
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