Beyond the US: fund ideas for other regions that stand out

Powered by the Magnificent Seven, global markets have been led by the US in recent years, but there are early signs of rotation away from US mega-cap dominance.

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The rebalancing of flows away from the US has been demonstrated in the historic slide in the dollar so far this year, marking its worst half-year performance for multiple decades.

“Any pullbacks in US equity markets this year have largely been temporary, but the sentiment shift and rebalancing of capital flows is evidenced in the continued dollar slide,” says Ollie Clark, deputy head of research at WH Ireland.

“We still expect solid performance from the US and the Magnificent Seven, but given current valuations and the attractive opportunities elsewhere, we anticipate that the performance we have come to expect from Uncle Sam will lag going forward.”

Europe

While the S&P 500 and European Stoxx 600 have produced similar returns in the year to date (to 29 July) – 8.8% versus 8.2% – the US dollar’s slide has made a big difference for UK-based investors.

For example, in sterling terms year-to-date the Amundi Stoxx Europe 600 ETF C GBP (LSE:MEUD) is up 15.9% versus a 2% gain for the Vanguard S&P 500 UCITS ETF GBP (LSE:VUSA). 

“We believe this trend has legs as the Continent continues to enjoy injections of both fiscal and monetary stimulus,” says Clark. “Furthermore, valuations are still very reasonable, and distributions are very attractive relative to those across the pond.”

WH Ireland has been adding to its position in Europe at the expense of the US, utilising MI Chelverton European Select for mid-cap growth exposure and Ardtur European Focus for large-cap value exposure.

“The two together provide a good balance and both have maintained their stellar track records since we invested,” adds Clark.

Ben Kumar, head of equity strategy at wealth manager 7IM, explains that the firm has adopted an overweight stance to Europe since the start of the year.

“Europe has a lot of things going for it, which are just starting to be recognised,” says head of equity strategy Ben Kumar. “The eurozone is cumbersome, but when it moves in a certain direction, it’s incredibly powerful, helped by the low friction of the single market.

“It also shouldn’t be overlooked that European governments can fund investment at very low interest rates – lower than the US or UK. So, when investor attention turns towards Europe, there are plenty of opportunities.”

For exposure, 7IM pairs Premier Miton European Opports with WS Lightman European to balance growth and value strategies.

To illustrate the investment potential in Europe, often “hiding outside the normal places”, Kumar highlights two holdings from the Premier Miton fund: Sweden’s RaySearch Laboratories AB Class B (OMX:RAY B) is a world leader in software for radiation therapy designed to improve cancer treatment precision, while Holland’s BE Semiconductor Industries NV (EURONEXT:BESI) is a global leader in next-generation semiconductor packaging equipment.

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The analyst team at interactive investor has a particular preference for smaller European companies.

“European equities, especially smaller companies, look cheap compared to their US counterparts,” says senior investment analyst Alex Watts. “Moderating inflation and lower interest rates are expected to boost the asset class, which has greater domestic exposure and is therefore well positioned to benefit from a European economic recovery.”

One option on ii’s Super 60 list of investment ideas is The European Smaller Companies Trust PLC (LSE:ESCT), which targets undervalued small and mid-cap stocks across the Continent and has a strong long-term track record.

James Carthew, head of investment company research at QuotedData, agrees that smaller companies in Europe are well placed.

“It feels as though, after years in the doldrums, Europe’s economy might start to expand once again thanks to the considerable stimulus unlocked by Germany’s relaxation of rules around investment in infrastructure,” he says.

His top pick in the sector is Montanaro European Smaller Ord (LSE:MTE), which has delivered an annualised return of 14.1% over 10 years – the best in the peer group, followed by the European Smaller Companies Trust at 12.6%.

EQ Investors maintains a modest overweight to European and UK equities, reflecting caution on US assets. Portfolio manager Tertius Bonnin highlights Germany’s new coalition commitment to spend €1 trillion (£870 billion) on defence and infrastructure over the next decade as a significant catalyst.

Of the €500 billion earmarked for infrastructure, around €100 billion is expected to go towards environmental and climate projects – a potential tailwind for Impax Environmental Leaders, a long-standing holding for EQ Investors.

Asia Pacific and China

Dollar weakness has historically supported Asia and emerging markets, helping bolster domestic demand and manufacturing.

Alex Watts, a senior investment analyst at interactive investor, highlights the Asia-Pacific as a global hub for innovation in areas such as artificial intelligence (AI), electric vehicles and renewables. Despite ongoing US trade policy uncertainty, the region remains resilient thanks to strong domestic demand, advanced manufacturing and robust intra-regional trade.

“China continues to deepen ties within Asia, particularly with the ASEAN [Association of Southeast Asian Nations] bloc, where trade exceeded $960 billion (£723 billion) in 2024, far surpassing its US trade volume,” he says.

Fairview Investing director Ben Yearsley is a “long-time Asian bull” – “sort of right, but mostly wrong as the only story for the last decade has been US tech”, he concedes.

But with US President Donald Trump’s tariff policies, the narrative is shifting.

“In a more protectionist world, increased intra-Asian trade will add to the story. A younger population, growing middle classes and lower debt levels all point to stronger long-term growth than in developed markets,” he says.

Yearsley favours a broad growth fund such as FSSA Asia Focus, paired with a China-specific small-cap fund such as Matthews China Discovery. “A small-cap fund takes you closer to the consumer and with the Beijing government keen to stimulate the consumer, it’s a fascinating time to invest.”

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Darius McDermott at FundCalibre is positive on Asia’s long-term prospects, especially in markets such as Southeast Asia, which are benefiting from strong demographics and structural reforms.

He also likes the FSSA Asia Focus fund, as well as M&G Asian for its deep research and risk-aware approach and Invesco Asian for its contrarian, value-driven style.

Another way to access this growth story is through ii Super 60 pick Guinness Asian Equity Income. It focuses on quality dividend-paying stocks across Asia (excluding Japan), with 36 equally weighted holdings.

In the investment trust world, Kepler Partners analyst Ryan Lightfoot-Aminoff highlights Pacific Assets Ord (LSE:PAC) trust. It targets “high-quality companies that are often global leaders in their space – including tech rivals to the US”. Holdings include Samsung Electronics Co Ltd DR (LSE:SMSN) and Indian automobile manufacturer Mahindra & Mahindra Ltd DR (LSE:MHID).

A golden Thar 4X4 is showcased in a Mahindra showroom in Srinagar in 2024. Credit: Nasir Kachroo/NurPhoto via Getty Images.

Alex Trett at Winterflood Securities points to Schroder Asian Total Return as a compelling choice.

“Its approach to investing in the Asia-Pacific involves segmenting the investment universe into ‘clusters’ that groups markets based on common characteristics. We view this as a disciplined and mature framework for navigating a highly diverse geography,” he says.

The presence of more than 40 analysts across six offices in the region lends itself to differentiated on-the-ground insights.

For China-specific exposure, Josef Licsauer at Kepler names Baillie Gifford China Growth Trust Ord (LSE:BGCG), arguing that “China’s push for tech self-sufficiency is accelerating, with policy support driving investment into advanced manufacturing, semiconductors and AI”.

Emerging markets

Quilter Cheviot has been overweight emerging markets for some time and is “becoming more positive at the margin as the geopolitical picture plays out”, says senior fund analyst Carly Moorhouse.

Home to more than 80% of the world’s population, she says emerging markets remain “severely under-represented in global portfolios” despite their clear demographic advantage.

Since 2021, the wealth manager has invested in Pacific North of South EM All Cap Eq, a value fund that blends fundamental and macroeconomic analysis. It offers broad emerging markets exposure, with the top three geographical weightings at the end of June being China (24.2%), Taiwan (18.6%) and South Korea (15.9%).

WH Ireland sees India’s outlook as particularly favourable in emerging markets. Peel Hunt is also constructive on the outlook for India.

“India continues to stand out globally, offering a rare blend of robust real GDP growth, reform-oriented government policy, favourable demographics, accelerating digital adoption and rising income levels,” says analyst Markuz Jaffe.

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Jaffe highlights Ashoka India Equity Investment Ord (LSE:AIE) for its high-conviction stock selection, which results in a bias towards smaller companies, and consistent outperformance among both closed-ended peers and open-ended funds.

Finally, to Latin America, where Scottish Mortgage Ord (LSE:SMT), a Super 60 global equities pick for adventurous investors, has identified possible “outliers”.

“We do have some very successful investments in US technology, but while the market has obsessed over the big US names, there are overlooked innovators and local heroes in other countries – resilient and exciting companies that could continue to grow despite geopolitical turmoil,” says Scottish Mortgage investment specialist Hamish Maxwell.

He points to MercadoLibre Inc (NASDAQ:MELI) and Nubank (Nu Holdings Ltd Ordinary Shares Class A (NYSE:NU)) as companies reshaping e-commerce and fintech across the region and creating new opportunities for investors looking beyond the might of America.