There are certain phrases in portfolio management that we accept at face value, like “balanced portfolio.” “Global equity” is another one. You would think the title says it all – it sounds like a diversified portfolio with exposure across many regions. But these days, “global equity” often means one thing: The United States. And you might be holding more of it than you think.
It is no secret that the U.S. has dominated the last 10-15 years of equity returns, powered by megacap tech and accretive policy tailwinds along the way. Naturally, that success pulled more capital in, and over time, it’s changed the shape of everything it touches, including the funds meant to look beyond it.
After the global financial crisis, North American global equity managers held just over 40% in U.S. equities, a modest allocation that felt reasonable given the size and influence of the U.S. market. While 40% is still a substantial country weight, it reflects a more balanced global approach. Today, that number has climbed as high as 62% and currently sits around 59%.
This shift has quietly redefined what it means to invest globally. And to be clear, no one’s blaming the managers. Ignoring U.S. dominance over the past decade would’ve been career suicide. The issue isn’t how we got here; it’s whether we’re still comfortable with where we are.
As a result, this has also influenced portfolio construction, often without investors realizing it. You might assume you're underweight in the U.S. or sitting at a neutral position, but once you look under the hood, the picture tells a different story.
A few weeks back, we shared some thoughts on international equities and touched briefly on how global equity managers are positioned, but we felt it was important to bring the conversation back to the portfolio. From our firsthand work with advisors, there’s been a clear and consistent pattern: U.S. equity weights across portfolios are almost always dominant, especially relative to our baseline.
In most cases, there is an awareness that their U.S. allocation is meaningful, but the idea that it might be an overweight doesn’t always register the same way. We're not saying that's wrong, but it's worth knowing, especially if the positioning wasn’t fully intentional.
But here’s the part that is most often missed. That 47% U.S. equity exposure is not just coming from dedicated U.S. mandates. A meaningful portion is coming in through the “global” positions in the portfolio. Across the portfolios we reviewed, the median allocation to global equity funds was 10% of the total portfolio. And within those funds, the median U.S. equity exposure was 65%. That means within the study, for a typical balanced portfolio with a 60% equity allocation, roughly 11% of the equity sleeve ends up in U.S. equities through global funds alone.
It's one of those things that looks harmless on the surface but changes the entire shape of a portfolio. In many cases, that indirect exposure contribution brings the total weight to a level well above what is believed and almost entirely encapsulates the overweight. The global equity funds are meant to diversify regional risk and instead end up reinforcing it.
Within many of these portfolios, global equity funds have become the primary source of international exposure. And it’s easy to see why. They’ve consistently delivered, though let’s be honest, that’s mostly because of their higher U.S. exposure. That relative strength has driven more allocation to global funds, which in turn increases U.S. concentration even further. Over time, the cycle has fed itself, leaving many portfolios with less true international diversification than the labels suggest.
This is not a red flag for everyone. Some are very comfortable with having a higher U.S. equity weight. The idea is to bring this concentration to light and understand what you own. The real risk here is not just overexposure to the U.S., but underexposure to everything else.
We have had a very strong period for international equities so far this year, and for the most part, many portfolios did not feel that supportive benefit amidst the U.S. weakness. If the first half of the year has taught us anything, it’s that diversification is still alive and well.
This is not a call to unwind U.S. exposure or avoid global mandates, although some portfolios may be able to benefit from it. It’s just a reminder that many of the frameworks we rely on were built during a different version of “global,” and we believe the goal should be to introduce a bit more balance. Moving forward, it may be time to revisit what those funds actually hold and how much of your U.S. equity weight is coming from indirect sources. Nothing in portfolio construction is static, but this trend has moved far enough that it deserves another look.
Final Thoughts
Global equity isn’t broken, but it’s not what it used to be. If true diversification matters, it’s worth asking whether your global exposure is really as global as it claims to be.
— Brett Gustafson is an Associate Portfolio Manager at Purpose Investments
Sources: Charts are sourced to Bloomberg L.P.
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