US overweight positions drove outsized returns for retail and institutional investors in the past decade, but Lorne Gavsie and his firm see that trend adjusting
US exceptionalism defined the past decade and a half of equity investing. Economic growth in the United States became a defining feature of equity markets, drawing more and more global and domestic investors towards its equity sector. The Chinese growth story fell by the wayside, other global markets moved in fits and starts, but the US with its deep roster of global industry leaders in so many sectors — but technology first and foremost — was a consistent attractor of capital.
The run was so phenomenal that now global investors, be they retail or institutional, own somewhere between eighteen and twenty per cent of the US equity market. Many of those investors are now significantly overweight their initial US equity benchmarks. Despite the past rewards they reaped from those overweight positions, CI GAM now sees a repositioning that may bring US allocations back to their benchmarks.
Lorne Gavsie, SVP and Head of Economic and FX Strategy at CI GAM recently authored an insight paper along with CI GAM economist Neil Shankar. The paper outlines some of why they see US dominance beginning to subside. Gavsie spoke with WP about why his firm sees this trend playing out, and what it could mean for Canadian advisors who have spent much of the past decade encouraging clients to allocate more to the US.
“We're now at a point where we're thinking ‘we've had this phenomenal run, is it time to start maybe repositioning and taking profits?’” Gavsie asks. “The Trump administration has brought on considerable change and disruption from a trade perspective, an economic perspective, from a security perspective and equally from an asset performance perspective. We’re seeing an economic slowdown as the pace of US growth clearly slows off of the extremely hot levels of 2.5 to three per cent growth that we saw over the past couple of years.”
A mixture of slowing economic growth and broad geopolitical uncertainty play into Gavsie’s view that global investors may begin to pull back their allocations to US equities somewhat. He notes, too, that the potential withholding tax increases for foreign investors baked into the “One Big Beautiful Bill Act,” if it is passed, should also change the calculus for some investors and make certain holdings unprofitable, especially if returns are less outsized in future.
Gavsie is quick to emphasize that while he sees some investors pulling back from overweight positions, he is not advocating for any wholesale abandonment of US equities. Investing in the largest economy and the largest capital markets in the world remains important. Moreover, despite higher volatility and lower returns compared to many other markets so far this year we have seen shorter periods of US outperformance. Retaining exposure for those moments is important.
Nevertheless, Gavsie sees questions around the US’ role in the global economy prompting a strategic realignment of global capital. The sustainability of US debt, for instance, has become a significant narrative for investors, which might see treasury yields rise in a negative move for risk assets.
“There’s a lot of fear built in with the uncertainty of what Trump policies bring to the table,” Gavsie says. “You’ve also had this great performance over the past number of years, so at what point do you say: ‘we’ve done well, let’s trim back a little bit?’”
While uncertainty may be pushing investors away from the US, new opportunities elsewhere are pulling capital towards other markets. Europe, for instance, has been the top performing geography in 2025 so far. Some of that comes down to attractive valuations in a region that has been historically frustrating for investors. Some of that, also, comes from renewed investments in infrastructure and defense being made in major European economies, notably Germany.
Canada, too, appears more attractive with a more business-friendly government under Prime Minister Carney and greater positive exposure to falling interest rates due to shorter mortgage terms. While the threat of US tariffs overhangs the Canadian economy, resolution on that particular issue may restore clarity and even bring back some of the positive tailwinds that analysts saw for Canada before the onset of tariffs.
In the case of both Canada and Europe, underperformance relative to US markets saw $1 trillion and $3 trillion respectively flow from domestic assets to US assets. Given the relative size of Canadian and European markets, Gavsie notes that even a portion of that capital flowing back to their domestic markets would drive ongoing upside.
For Canadian advisors who see the same trend, there may be upside in reallocating some of their clients’ US positions back towards Canadian assets. Doing so, however, runs somewhat contrary to the messaging that Canadian investors should reduce the home bias in their portfolios. Gavsie, however, argues that advisors may want to frame this rebalancing in the context of current opportunity and the maintenance of some US allocations.
“I think it's important for advisors to be balanced in how they approached this. I'll create a sample portfolio. Say it's meant to be 40 per cent US, 40 per cent Canadian, and 20 per cent global. We've probably been running something like 45-50 per cent, maybe up to 60 per cent US exposure,” Gavsie explains. “I'm not saying that you should go zero US exposure, but I think it may be worth considering taking that back closer to your benchmark target.”
