Investors’ obsession with the US seems to be waning as returns from the country’s flagship S&P 500 index slowed from 24.5% in 2024 to 17.9% in 2025 and made an uncertain start to 2026.
So, it may seem surprising that in our latest rebalance, the AJ Bell investment team chose to increase the proportion of assets we hold in the US. Notably, our holding was already well below the average. While a global fund that tracks the MSCI World would have about 71% in US companies, we currently hold 30% in our Adventurous fund and 23% in our Global Growth fund.
One reason for this approach is ensuring the AJ Bell funds are well diversified across regions and sectors. Not only does the US market make up a large part of the global indices, within it, there’s a large exposure to a small group of companies with a strong AI presence such as Nvidia, Meta, and Alphabet. The high valuations of these companies push the price of the entire US market up to a level that has felt too expensive for us. However, when we look beyond those top names, to other sectors of the market such as energy and healthcare, we’ve found much more attractive opportunities to buy.
The price of the US versus Europe
Those who follow markets will know there is often talk about how ‘cheap’ the UK and Europe are in comparison to the US. By cheap, they mean the price to buy into those markets relative to the profits created by the companies is low.
The US has long been marked as expensive, because prices seem high compared to current profits the companies are making. In industry-speak, this is often measured through the price to earnings (PE) ratio.
But in the past year, we’ve noticed an interesting trend. In US indices, such as the S&P 500, the PE ratio has increased just slightly, from 21.5 at the beginning of 2025 to 22.5 at the end, according to Refinitiv. But in the UK and Europe, this ratio has increased more considerably, meaning the price is becoming more expensive in comparison to the value. The FTSE 100 PE ratio increased from 11.2 to 13.2 in 2025, and MSCI Europe ex-UK increased from 14 to 15.9. In Germany for example, policy changes to stimulate industry have led analysts to expect better profits growth ahead, despite these changes not coming through yet in earnings figures.
While this doesn’t change the case for US investments, it does make the UK and Europe slightly less appealing in comparison, as they aren’t as undervalued as they used to be. So, while in previous years, we’ve increased exposure to those regions to capitalise on their value, now this option provides less of a price advantage.
Diving into the US
Of course, there are other regions outside Europe, the UK and the US which hold plenty of opportunity, and where we are investing as well. But there are aspects of US companies that are compelling. US companies have strong corporate structures and tend to be on the forefront of innovation.
While the attention in previous years has been on AI themes and the Magnificent Seven, we see opportunity beyond this, in areas such as energy, healthcare and utilities. These sectors are where we’ve increased our US exposure, instead of to the US market as a whole.
The appeal of these specific sectors is partly down to how they are positioned around AI: they are possible beneficiaries, but not reliant. What does this mean? If AI was to continue its trajectory of innovation, neither of these industries would likely be under threat. AI would need energy to sustain itself, and healthcare would benefit from the innovation. If AI did not progress as markets hoped, there would still be plenty of business and opportunity in these industries, allowing them to do well.
The US is not the only region where you can gain exposure to these sectors, but in our view, it does have some of the best companies. Take, for example, US energy company Exxon Mobil versus the UK’s BP. In the past five years, Exxon has a total return (including dividend payments) of 229% in pounds sterling. During the same period, BP has returned 105%. Some of this difference came from decisions about how the companies decided to spend their money.
In 2020, BP made a strong push for clean energy, gaining large amounts of praise at the time. However, their plans have not proved as fruitful as hoped, leading the company to slowly roll back on those promises. This switch caused not only a loss on that investment, but a swarm of negative press. Meanwhile, Exxon made its own, humbler, clean energy promises in 2021, allocating £3 billion to this effort, which was far less than its European peers. Exxon has been able to keep pace with its promises, and has quietly increased its spending on the area, to now outpace BP.
The quiet approach pursued by Exxon over BP’s loud promise that ended in disappointment demonstrates a phenomenon we tend to like about US businesses. Many have proved in the past to be prudent spenders and provide strong delivery.
The Trump factor
It’s hard to separate politics from the markets in the US. Last year’s tariff drama led to a significant market drop not just in the US, but abroad as well. As the US prepares for a new Federal Reserve Chair, as well as three more years of Donald Trump, there’s likely more unexpected turns ahead, which could cause more market wobbles.
However, our view of the US is focused on the long term. Will Trump be able to do damage to corporate America in a way that weakens companies for decades to come? In the past, when markets have started to feel the pressure of Trump’s policies, it has resulted in quick policy rollbacks. While political turmoil seems inevitable, the US has an extremely strong corporate culture, which we believe will be able to stand the test of Trump.
James Flintoft: Head of Investment Solutions
James has over a decade of experience running MPS and managed accounts for intermediaries. After graduating from Northumbria University with a first class degree in Finance & Investment Management, James joined a regional DFM, where...
