Fund managers turn their back on UK and European markets in favour of US shares
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The big rotation from the US stock market to cheaper regions such as the UK, Europe and emerging markets may have peaked, judging by what fund managers are saying around the world.
At the start of 2025 we saw a shift in investor behaviour as many people expressed concern about the outlook for the US economy and policies being adopted by the Trump administration. At the time, US markets were relatively expensive and that drove certain investors to look in other parts of the world for cheaper opportunities.
It was called ‘the big rotation’ because many investors moved money from the US and parked it elsewhere, thereby reshaping investment portfolios. The wheels might now be turning again.
Each month, the Bank of America surveys a panel of fund managers to see how they are positioning portfolios, and to gauge their view on markets. The latest survey implies that the value trade that’s helped to drive up markets across Europe including the UK might run out of steam amid fewer active buyers among the fund management community.
The survey found that fund managers have been cutting European and emerging market exposure over the past month, closing out bets that the US market will weaken, and buying more shares in the technology sector.
Falling appetite for UK shares
Of particular interest was the news that September saw the biggest monthly rotation out of UK shares since April 2004. Fund managers taking part in the Bank of America’s survey now have their lowest allocation to UK shares in 18 months.
So, what’s driven this change? The UK and mainland Europe have delivered strong gains this year, and fund managers might simply be locking in profits while the going is good. They might also feel that tariffs and trade wars aren’t going to cause widespread damage to the US economy, and that the country is more resilient than previously thought.
If fund managers are showing a higher appetite for risk, the UK might not have what they’re looking for. UK-listed companies typically have lower earnings growth than the big tech firms that dominate the US stock market.
How is AJ Bell positioned with its own funds?
The US is not without its challenges and while some investors may be looking back across the pond, AJ Bell’s investment team remain comfortable having exposure to the UK, Europe and Asia in their portfolios.
“Valuations in these parts of the world do not seem excessively elevated,” says Ryan Hughes, managing director of AJ Bell Investments. “For example, China continues to trade at just over 10 times earnings while markets like the UK and Europe also trade at sensible levels.
Meanwhile, the S&P 500, the most popular US stock market index, is trading at 22 times earnings.
“Political noise in developed markets can’t be dismissed but it’s important to remember that many companies continue to grow profits and dividend streams regardless of the political uncertainty and as a result, we remain comfortable with our exposures away from the US,” Hughes says.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
