Beyond Borders: Rethinking Global Diversification

🌍 Global Capital Flows Are on the Move

In 2025, the traditional playbook for international diversification is being challenged. A confluence of currency volatility, valuation disparity, and geopolitical uncertainty has prompted global investors to rethink their exposure to U.S.-dominated portfolios.

Earlier this year, Hawksmoor Investment Management modestly increased its exposure to U.S. markets through a value-focused strategy. But as U.S. growth stocks surged again, outperforming value by a wide margin, portfolio manager Daniel Lockyer now acknowledges the shift as a strategic misstep.

🇺🇸 Why U.S. Dominance May Be Losing Its Shine

We've reassessed our U.S. overweight,” Lockyer explains. “Recent political developments have introduced volatility and fiscal uncertainty across U.S. equities and Treasuries. Even the dollar itself is under scrutiny.

Lockyer’s team is now reallocating capital toward Europe and the UK, markets they see as relative beneficiaries in a rebalancing away from dollar-centric allocations. In their view, valuation gaps, interest rate convergence, and currency dynamics now favor a broader approach to global diversification.

🇯🇵 Japan: Undervalued, Under-Owned, and on the Rise

Japan is also re-emerging on investor radars. With the yen still significantly undervalued and structural reforms bolstering corporate governance, Lockyer prefers locally exposed Japanese funds to hedge against yen volatility. “Currency risk is no longer passive,” he notes. We actively seek exposure where FX moves are part of the upside—not just a risk to be mitigated.

Supporting this sentiment, Peter Walls of Unicorn Asset Management questions the sustainability of U.S. dominance. The U.S. now represents over 70% of global indices, trading at a 40%+ premium on forward P/E. That’s reminiscent of Japan in 1989—right before its long correction.

Walls finds deep value in Japanese equities, where 40% of listed companies trade below book value. He also highlights UK small-cap investment trusts like Rockwood Strategic (RKW) and Odyssean (OIT) as overlooked opportunities

🌐 The Currency Climate: A Strategic Inflection Point

Currency trends are no longer background noise—they are frontline strategic concerns. A weaker U.S. dollar boosts returns in non-USD assets and lowers import costs for emerging markets (EM). This dynamic is encouraging managers to rotate into EM equities, particularly in regions benefiting from dollar weakness and domestic reforms.

Philip Chandler and his team are increasing exposure to U.S. financials, European equities, and select EM plays, recognizing the upside from lower FX pressures and more attractive relative valuations.

📊 Rebalancing in Action: The New Portfolio Mix

Karen McMillan is also shifting her global allocations. She maintains a neutral stance on U.S. exposure while favoring Europe and Japan, with a selective tilt toward Latin America over Asia among EM holdings. This reflects a growing trend: investors are looking beyond traditional U.S.-centric allocations and embracing multi-regional, currency-conscious strategies.

✅ Strategic Takeaways for Global Investors

If you’re managing a diversified portfolio or advising international clients, here are four key actions to consider:

1. Re-evaluate U.S. Overweights
   Consider trimming exposure to U.S. equities, particularly in growth-heavy or unhedged dollar positions.
   

2. Explore Value-Rich Regions
   Europe, the UK, and Japan offer lower valuations, improving governance, and currency tailwinds.
   

3. Diversify by Currency
   Avoid single-currency exposure. Use FX-hedged strategies or build in regional balance across currencies like EUR, JPY, and EM local FX.
   

4. Monitor Macro-Policy Divergence
   Central bank decisions, trade shifts, and fiscal policy debates are increasingly regional—so your diversification should be, too.
   

5. 💡 Conclusion: Diversification Now Demands More Depth

What once passed for diversification—owning non-U.S. equities within a U.S. dollar portfolio—is no longer sufficient. Today’s global markets require a more nuanced, currency-aware approach to capital allocation.

As valuation gaps widen, and as FX volatility becomes a strategic variable, smart investors are looking beyond borders—both figuratively and literally.

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