25 Jul 2025
One key lesson from the past 25 years is that what you invest in really matters — for example, during the dot-com crash or the financial crisis, some types of investments lost far more value than others. This article discusses the considerations for building a robust portfolio and how we think about managing the regional and currency exposures.
One key lesson from the past 25 years is that what you invest in really matters - for example, during the dot-com crash or the financial crisis, some types of investments lost far more value than others. Where companies are based has mattered less, since many governments have followed similar economic policies. Investors have generally put their money where the biggest markets are, which means they’ve been investing more and more in the US.
More recently, there have been times when US stocks, government bonds (known as Treasuries), and the dollar have all fallen at once. This has made investors ask whether they’ve spread their money widely enough across different regions. This shift comes at a time when global economic and policy paths are diverging. As countries pursue more domestically focused agendas, geography is re-emerging as a strategic factor that can shape risk, return, and portfolio resilience.
This article discusses the considerations for building a robust portfolio and how we think about managing the regional and currency exposures.
Key takeaways for investors
When evaluating the investments in our portfolios, we - along with the fund managers whose strategies we invest in-take into account the following key considerations:
Case study: US vs Europe in 2025
Since so much of the global stock market is made up of US companies, this begs the question whether the US can continue to outperform other regions. In April, US equities fell sharply following the announcement of significant country-specific tariffs by President Trump, which raised investor concern over US and global growth prospects. However, in the following months, US stock markets rebounded strongly, supported by optimism over the path of global trade policy, a meaningful decline in near-term US recession risk, and robust US corporate earnings in the first three months of the year. At the same time, many investors anticipated increased investment in Europe, especially following Germany’s €1 trillion infrastructure and defence plan and renewed optimism around EU cooperation. However, European equities underperformed (on a relative basis), as investor focus shifted to near-term economic risks from EU-US trade tensions.
One big reason US and European stock markets have performed differently is company profits. US companies, particularly in the technology sector, tend to have stronger balance sheets and higher corporate profitability - meaning they’re in better financial health. The continued dominance of a small group of major US companies - often referred to as the 'Magnificent 7,' which includes Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla - has been central to US equity market strength. These companies have reported high earnings per share (EPS), often beating already high investor expectations in recent years, thereby reflecting strong profitability, industry leadership, and investor confidence. While Germany’s fiscal stimulus is expected to lift economic growth over the coming years and sentiment has improved from very low levels, corporate earnings growth remains a key hurdle for European markets. In contrast, US equities remain supported by retail investor activity, corporate share buybacks, and continued momentum in large-cap tech. The strong leadership and profitability of US mega cap technology stocks may continue to widen the profitability gap between US and European markets.
Looking ahead, in the near term, US markets may face renewed volatility as tariff-related trade tensions persist and geopolitical risks remain elevated. To an extent, US economic and earnings growth in 2026 will find support from the stimulative tax and spend “One, Big, Beautiful Bill”. Over the medium to long term, things like slowing US growth and increased fiscal spending in Europe could help narrow the economic and potentially equity market performance gap between the two regions. For now, the continued dominance of the Magnificent 7 underscores how global equity performance is being driven by a narrow group of US firms. Given the global equity index (MSCI ACWI) market-cap weighting, which means each company’s size in the index is based on its market value, these companies exert outsized influence. This is demonstrated in the chart below which shows the total return of the Magnificent 7 compared to the global equity index (MSCI ACWI). As a result, any underperformance among them could disproportionately impact the broader index.
Currency trends
Currency movements can significantly impact investment outcomes. For example, if a UK investor buys a US stock, returns depend not only on the company’s performance but also on how the pound moves against the dollar. Over the long term, a currency’s value tends to reflect the strength of its underlying economy; factors like interest rates and growth play a role. The US dollar, for example, has historically benefited from strong economic fundamentals and its role as the world’s primary reserve currency (a foreign currency that is held by governments, central banks or other monetary authorities) has also made it a preferred destination during periods of uncertainty. However, there are times when currencies behave unexpectedly and this is often as a result of supply and demand, rather than because of economic fundamentals.
Our approach is to invest globally providing exposure to foreign currencies, like the Euro or US dollar. We use a process called currency hedging which means we can select how much foreign currency exposure we have within the portfolio to limit the risk we are taking on currency. We hold foreign currencies to help manage risk over the long term, not because we’re speculating on which currencies will appreciate or depreciate.
Why diversification matters
Diversification remains a cornerstone of robust portfolio construction. The idea is simple: don’t put all your eggs in one basket. By spreading investments across regions, sectors, and asset classes, investors can reduce exposure to concentrated risks. For example, if US equities underperform, allocations to Europe or Asia may help cushion the impact. Because the ‘Magnificent 7’ now make up such a big part of the global market, it’s harder for investors to stay diversified if they just follow the index. In the context of currency markets, a diversified currency allocation can help mitigate risks associated with concentrated positions in any single currency, including the US dollar.
Why is active management necessary?
If you look at the largest companies from 20 years ago, you will notice they are not the largest companies today. This shows that market leadership can change over time. Therefore, it’s important to find a balance between the two approaches: staying invested in the broader market to benefit from strong-performing companies like the ‘Magnificent 7’ and using active decision-making to avoid putting too much into areas that may be overvalued. This ensures that you don’t miss out on potential gains.
Disclaimer
All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.
Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.
The value of investments and any income from them can fall and you may get back less than you invested.
The value of investments and any income from them can fall and you may get back less than you invested.
