Comfort is one of the most dangerous forces in portfolio construction. It sneaks in quietly; one year of outperformance leads to five, then 10, and suddenly the allocation that once felt aggressive has just become normal. That’s exactly where we are today with U.S. equities. After more than a decade of dominance, portfolios across the industry have become saturated. The obstacle moving forward is that history shows leadership always rotates. And lately, international has been signalling that the tide may already be shifting.
This is not just a 2025 story; although international equities have had a great year, the trend has been building for a while. Ask most people who the big winner has been over the past three years, and they would likely say without question the U.S. market. And technically, they would be right if you're looking at the S&P 500.
But if you strip out those seven mega-cap stocks, the picture turns in favour of international. It’s not a blowout, but it’s enough that, on a risk-adjusted basis, it starts to make sense for having more in a portfolio. A weaker USD has helped too, but good or bad, that’s part of the deal investing in international equities.
The problem is, very few people's portfolios have captured this performance. Take Canadian balanced funds: U.S. equity allocations have steadily moved higher, now sitting at 50%. Canada has been meaningfully squeezed out, and while nobody is arguing that we should go back to portfolios that were 50% Canadian equities, clearly the pendulum has swung hard in one direction. At some point, there has to be a middle ground between too much home bias and too much U.S. reliance.
It's not just balanced funds, either. Global equity mandates tell the same story, with U.S. weights now hovering around 60% for the median manager. Some of these are passive indices, but some are actively managed decisions. In the past, U.S. managers naturally leaned more into their own market than Canadian managers did, but that gap has been erased. Canadians have caught up, and today, both sides of the border are running near identical U.S.-heavy allocations. Which begs the question: is that really optimal, or is everyone just piling into what has worked?
History tells us leadership is most likely to change. There have been long stretches of time where international, developed, or emerging markets have carried the torch. Cycles rotate, often after long periods of dominance by one region.
If the U.S. remains on top, then all of these portfolios will continue to cruise along. No harm, no foul. But if leadership rotates, many portfolios will significantly underperform those that were ahead of the curve. And if the tide really does turn, the flow impact could be enormous. A shift in leadership would trigger massive rebalancing, the kind of rotation we’ve referenced before as part of the “Great Rebalance.”
You see the same thing when you analyze advisor portfolios. Most still carry a healthy U.S. overweight, with international, whether developed or emerging, only getting a small slice of the pie. Emerging markets in particular often show up as a couple of percentage points in most models, despite better valuations and long-term growth dynamics. Developed international isn’t much different, left under-owned and overlooked. None of this is surprising after such a long run for the U.S., but if leadership changes, it could be a classic case of Buffett’s warning: when the tide goes out, you see who’s been swimming without enough international.
This is the comfort trap. After 15 years of U.S. outperformance, being overweight America has become the default, to the point that maybe this isn’t even considered overweight anymore. Nobody sits back and questions it. Every category we’ve looked at – balanced funds, global equity mandates, and client portfolios – has drifted in the same direction. It feels safe because it’s been rewarded for so long. If you dare to step out, the opportunity to benefit could be immense.
This doesn’t mean you should go all in on international equities, and it certainly doesn’t require a heroic contrarian call. The exact turning point doesn’t need to be nailed down; we might even be past it. What matters is recognizing the blind spot in a portfolio. Portfolios don’t exist in isolation; whether you’re a fund manager or an investment advisor, we all feel the same pressures. Clients want to beat the benchmark, and rightly so, but it also fuels a herd effect. Portfolios inch toward the same exposures, and over time, they stop looking distinct. It feels safe because it has worked, but easy usually doesn’t mean right. When everyone owns the same exposures, the risk of being wrong together rises dramatically.
This is an interesting moment in time, coming off one of the best periods of investing in U.S. equities ever. If the next decade looks like the past, being U.S.-heavy will be just fine. But if leadership changes, the opportunity belongs to those who have already made space for international. Clients rarely remember if you beat peers by a percent or two, but they will likely remember if you positioned them ahead of big shifts others missed. That’s the kind of difference that builds conviction, trust, and long-term value in a relationship.
Final Thoughts
Comfort has shaped portfolios for long enough. The challenge now is deciding whether to keep following the same path or prepare for something different. That decision will define who gets ahead in the next cycle.
Resist the comfort trap.
— Brett Gustafson is an Associate Portfolio Manager at Purpose Investments
Sources: Charts are sourced to Bloomberg L.P.
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