Investors are becoming more willing to increase their exposure to international equities, as concerns over the dominance of the "Magnificent Seven" technology giants encourage diversification away from U.S. stocks, Janus Henderson Investors' Julian McManus told CNBC.
"There's definitely a move to explore more outside the U.S.," the portfolio manager on Janus Henderson Investors' Global Alpha Equity Team said in an exclusive interview. The firm reported about $480 billion in assets under management as of March 31.
The shift marks a stark contrast with two years ago, when U.S. financial advisers were more reluctant to consider overseas markets after a decade in which American stocks consistently outperformed international peers.
The MSCI ACWI ex-US index has risen over 8% year-to-date, compared to the S&P 500's gains of 6.8%, data from LSEG showed.
McManus said investors had become heavily concentrated in a handful of large-cap U.S. technology stocks, leaving portfolios vulnerable if leadership in those names faltered.
"The Mag Seven is nearly half of your index, and you're all in," McManus said. "If that goes into reverse, you're going to have a problem."
While he stopped short of describing the shift as a wholesale exodus from U.S. assets, McManus said the recent outperformance of international markets had prompted investors to reassess global allocations.
"I wouldn't say it's like a stampede. It's by no means a panic," he said. "But at least people are more open to having that conversation."
McManus added that politics had played only a limited role in investors' asset allocation decisions despite heightened geopolitical uncertainty.
"I think the political debate sort of comes and goes, but I think most advisers, most investors are fairly pragmatic and they'll go where they see the returns, and they tend to overlook the politics," he said.
- Europe:European banks
- Japan:Japanese banks and life insurers
- South Korea:Samsung Electronics
- China:Tencent, CATL
- Defense:BAE Systems, Hyundai Rotem
- Healthcare:Argenx
- U.K.:AstraZeneca, NatWest
- Canada:Canadian Natural Resources, Teck Resources
- Technology/AI:Semiconductor suppliers rather than AI application companies
- India:Positive long-term on India; watching Reliance Industries but currently underweight on valuation grounds
Among his preferred markets, McManus highlighted European banks, Japanese financials, selected South Korean and Chinese companies, as well as defense and healthcare stocks.
He said European banks had become significantly more profitable and still had room for further re-rating, while Japanese banks and insurers stood to benefit from rising interest rates after decades of ultra-low borrowing costs.
McManus also sees value emerging in South Korea following the recent selloff.
"Korea has definitely been through the wringer just recently," he said. "We do think that there's a lot of value in some of these Korean names."
He singled out Samsung Electronics, saying investors were overlooking the long-term potential of its foundry business, which he believes is not yet reflected in the company's valuation.
McManus was also constructive on Chinese equities, saying several of the country's "national champions" had been "thrown out with the bathwater" after years of weak sentiment. He highlighted Tencent and CATL as examples of companies whose valuations do not fully reflect their competitive positions.
Despite enthusiasm around artificial intelligence, he said Janus Henderson remained disciplined on valuations and preferred investing in semiconductor suppliers rather than trying to identify eventual AI winners.
"We can't have AI without semis," McManus said, adding that the firm's approach remained focused on bottom-up stock selection rather than making large sector bets.
Looking ahead, he argued that investors were underestimating the long-term returns from AI investment.
"If you look at Google's quarterly return on invested capital... those bottomed three quarters ago, and since then they've been ramping steeply, which shows that the returns are there for the Googles and the hyperscalers," he said.
The push to diversify extends beyond equities. Ian Horne, investment director at Muzinich & Co., said heightened volatility around Federal Reserve decisions and economic data was encouraging investors to broaden their portfolios globally rather than make aggressive short-term bets.
"We're seeing more and more volatility in rates," Horne said. "It probably means you want to be a bit more diversified globally."
Still, some wealth managers argue the investment case for the U.S. remains intact. Polka Mishra, chief wealth adviser at Javelin Wealth Management, said the firm continues to favor U.S. equities, citing resilient economic growth, easing inflation pressures and continued leadership in artificial intelligence.
"The most attractive market at this point is the most resilient, and it has continued to show the exceptionalism that we've all continued to question for a few years now," Mishra said.