In this quarterly market update, Darius McDermott and Juliet Schooling Latter, managing director and research director of FundCalibre respectively, analyse the latest investment trends shaping 2025. From the dominance of tech and US markets to the resurgence of China and the struggles of smaller companies, they cover the key themes impacting global investors today.
Why you should listen to the interview: Markets are shifting, and your portfolio strategy should too. Our experts dissect the latest global investment trends, highlighting opportunities and risks in key sectors. Whether you’re questioning tech’s dominance, considering China’s resurgence, or looking for hidden gems in UK and US smaller companies, this episode provides actionable insights for the year ahead.
This interview was recorded on 26 March 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Will US dominance continue?
“That’s the million dollar question, isn’t it? Managers are quite divided on this. Some this week have told us that it’s the beginning of the end of US stock market dominance, and others say it’s just a blip. And and we’re equally divided on our team. I’m somewhere in the middle. I think that tech and the US were both due for a pullback. Valuations had become really pretty stretched. And I think it will give investors an opportunity hopefully, to discover are there other areas of investment.
“Generally anything that goes down 15%, if you were going to buy it before you should be thinking about buying it now. Do I think there will be long-term value in tech and US equities? I do, but the Mag 7 are investing so much money in R&D and I don’t think you’re going to see a return on equity. I don’t think the hundreds of billions being spent on AI research itself will necessarily have a high return on equity.
“The other thing is valuations. The US market is and was at the turn of the year at the upper end of its long-term valuation history. That in itself doesn’t mean it can’t keep going up, but what it does mean historically is your future returns over the next decade tend to be lower when the index itself is at a high starting valuation.”
Investors are more exposed than they think
“Roughly 37% of the S&P is the Magnificent 7 stocks. I don’t think people are fully aware of quite how concentrated the S&P is. And to put it in another way, the top five stocks in the MSCI World index is 20%. So if you are buying, as a lot of people have been, global or US trackers, you are really pointing one way. And you at least be aware of that. And what I think this year is showing, is maybe there are other markets for consideration.
“Yes, I’d urge people to look at their home market. I mean, it’s so unloved and it’s so cheap. We spoke to one seasoned sort of UK manager this week who’s been doing UK equities for donkeys years. He was talking about the discount between public and private UK companies is the widest he’s ever seen. And you know, the UK economy might be struggling, but we do have some good companies here and they just fly under the radar because no one has wanted to invest here. But you know, there is evidence that overseas investors are now looking at it with interest and I think fingers crossed, we might see the tide turning this year. So buy now while stocks last.”
The underperformance of US smaller companies
“I think the underperformance of US smaller companies has sort of rather taken everyone by surprise because as Darius mentioned, Trump despite all his, many, many flaws, he was viewed as sort of business friendly, but he’s rather spooked markets with his sort of wide ranging policies. So, you know, tariffs are very inflationary for a start. There’s funding cuts, immigration crackdown, slashing of the government workforce. So people are concerned that this is going to damage the economy.
“And one of the interesting things is how much consumer confidence has declined. The American economy is built on consumerism and a nervous consumer is one that doesn’t spend. People are very concerned. So all in all, he’s brought a lot of instability and businesses won’t invest during instability and markets don’t like instability.
“No, they don’t. And again, I wonder when you look at US smaller companies actually, US smaller companies have done, okay, last time we checked they were at a slight premium to their long-term average. But the big issue here is they are hugely overshadowed by US mega-cap companies, which have gone and dominated the market and are trading at, I mean the S&P’s trading at record premium, certainly on a cyclically adjusted P/E. And you can see if you look at performance, it really was at or around the time of the election in America, there was a real uptick in US smaller companies, but since the inauguration, it’s been a different story and as Jules say that market uncertainty caused by the US president has spooked the US stock market full stop, and smaller companies haven’t been immune.”
What about your bond allocation?
“I think bonds should be part of most people portfolios. I think younger people at the beginning of their savings journey can probably take more risk than owning bonds. But people who are at or approaching retirement or in retirement who a need the yield, which these government bonds offer, but also historically you get some diversification between equities and bonds.
“I would have no objection to having a fair allocation and in the funds that we oversee — the VT Chelsea Managed range — we’ve got a decent chunk of bonds of different types. Some emerging market debt, some high yield and some government bonds. We’ve got a decent chunk of government bonds because you’re getting a fair return. And the one thing I do know about government bonds, if something comes up to spook the markets, government bonds are a risk off asset and people pile in and then yields go down and prices go up. So a fair yield and also a bit of a risk off hedge to a portfolio should something nasty come up and spook stock markets.”
Conclusion: While US tech and AI continue to dominate, opportunities are emerging in undervalued regions like UK smaller companies and China. We believe that investors should have diversification in their portfolio as valuations change.
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