Wall Street's revenge and the allocation strategy - June 30, 2025
With new records on the S&P 500, the ‘anything but US assets’ consensus among asset allocators has been reversed in recent weeks. These rotations have had little impact on our global funds, as our strategies are based on selecting promising themes, regardless of their origin.
After a first quarter of strong underperformance relative to other regional indices, particularly the EuroStoxx, the S&P 500 has been catching up since the end of May (Chart 1). The likely causes of this spectacular recovery include investors' undoubtedly overly pessimistic stance towards the United States, the trade truce with China and the solid results posted by US market leaders.
In our global funds, we have made a few tactical bets in this direction in recent weeks (purchases of futures contracts on the S&P 500 and then the Nasdaq). However, the core of our allocation strategy lies elsewhere, in the selection of investment themes that we believe to be particularly promising. These themes – currently new corporate spending (AI, energy efficiency, etc.), European and Japanese financials, and the prospect of a global industrial recovery – span a number of regions. The main criterion for selecting stocks is their exposure to the chosen theme. These themes may be local – European financials, for example – but most of the time, the composition of our thematic baskets transcends borders.
Rather than thinking in terms of countries, we prefer to take a global view of the drivers of performance, identifying the companies best positioned to benefit from these dynamics, regardless of where they are listed. This choice is reflected in equally weighted baskets of stocks. This investment strategy allows for precise implementation of the chosen themes, while avoiding dependence on just a few stocks.
We are therefore unfazed by frequent changes in the performance hierarchy of regional indices. It is worth noting that, between the United States and Europe, performance over the last two years has been largely driven by AI stocks, where America dominates, and by the strong rebound of European financials (24% of the MSCI EMU index) after a long slump. These two themes have significantly outperformed the MSCI World Equal Weight Index since the market low in autumn 2022 (Chart 2).
In our portfolios, AI is one of the pillars of a broader theme we call ‘New Capex’, which includes companies that are benefiting most from both the exponential growth of AI and other investment spending that is essential today, such as energy efficiency and smart grids. We reduced the size of this theme last autumn because we felt valuations were too high, but we re-entered the theme in March after an initial sharp decline, and then again in early May. As for the financials theme, we expanded it to include certain Japanese stocks in August 2024 to take advantage of a sharp market correction. We are maintaining our exposure to this theme, which remains very attractively valued. The composition of these thematic baskets evolves over time in line with market developments and sector dynamics. Finally, we remain fully hedged against movements in the dollar.