Page 10 - FWP Wealth Adviser newsletter - June 2025: Issue112

ISSUE 108
MARCH 2025

Firstlinks’ The Case For and Against US Stock Market Strategic Lessons for Investors:
Exceptionalism presents a balanced view: Building Resilience in Portfolios
“While the S&P 500’s concentration in tech giants For investors, the challenge is to translate these insights
creates fragility, no other market offers comparable scale in into actionable strategies that balance opportunity with
high-margin industries.” resilience. Here are several key lessons:
Let’s break down both sides of the argument.
1. Diversification Beyond US Equities
Arguments For US Exceptionalism Allocating to Australian equities, private assets, and
1. Innovation and Corporate Governance alternative strategies can reduce portfolio volatility and
The US remains the global leader in innovation, with capture growth in underappreciated regions.
a culture that rewards risk-taking and a regulatory envi-
ronment that supports entrepreneurship. Its corporate 2. Hedging Currency and Geopolitical Risk
governance standards are among the highest in the world, With the US dollar near multi-decade highs, currency
providing transparency and accountability. risk is a growing concern. Investors should consider hedging
strategies or currency-diversified assets to protect against
2. Market Depth and Liquidity dollar depreciation.
The sheer size and liquidity of US capital markets attract
global investors, reinforcing a virtuous cycle of investment 3. Thematic Investing in Structural Trends
and innovation. Investing in themes such as artificial intelligence, energy
transition, and healthcare innovation can provide exposure
3. Sector Leadership to long-term growth drivers that transcend national bound-
The US dominates in high-margin sectors such as technol- aries. As the Firstlinks article on the new capital cycle notes,
ogy, healthcare, and finance. As the article notes, “No other “AI and energy transition are not just US stories-they are
market offers comparable scale in high-margin industries.” global, and advisers should seek diversified access.”

Arguments Against US Exceptionalism 4. Emphasising Quality and Resilience
1. Concentration Risk In an era of slower growth and greater uncertainty,
The S&P 500’s heavy weighting in a handful of tech gi- quality matters. Focusing on companies with strong balance
ants-Apple, Microsoft, Alphabet, Amazon, and Meta-creates sheets, pricing power, and sustainable competitive advan-
systemic risks. As the article cautions, “The S&P 500’s tages can enhance resilience.
concentration in tech giants creates fragility.”
5. Applying “All Weather” Portfolio Principles
2. Deglobalisation and Geopolitical Risk Bridgewater Associates’ “All Weather” approach-balanc-
Rising protectionism, supply chain disruptions, and geo- ing risk across asset classes and economic scenarios-remains
political tensions (notably with China) threaten the global highly relevant. As Ray Dalio writes, “The biggest mistake
order that has benefited US multinationals. investors make is to believe what happened in the recent
past is likely to persist.” (Dalio, Principles for Navigating Big
3. Political Polarisation and Fiscal Imbalances Debt Crises)
Domestic political gridlock and rising public debt pose
long-term risks to economic stability. Conclusion: Embracing Uncertainty
External comparisons reinforce these points. The MSCI in the Post-Buffett Era
World ex-US index, which tracks developed markets outside Warren Buffett’s farewell is more than a personal mile-
the US, has lagged US returns for over a decade but may offer stone-it is a metaphor for a broader transition in the global
diversification benefits as relative valuations become more investment landscape. The era of unchallenged US dom-
attractive. European and Asian markets, while less dynamic inance may be giving way to a more complex, multipolar
in some sectors, provide exposure to different economic world, where innovation and adaptability remain critical,
cycles and regulatory environments. but risks are more diffuse and returns harder won.
As Firstlinks concludes: For investors the lesson is not to abandon faith in US
“The US market’s exceptionalism is real but not im- dynamism, but to temper optimism with pragmatism. As
mutable. Investors must weigh its strengths against rising the articles reviewed here make clear, “The US market’s
risks and the potential for mean reversion.” (The Case For exceptionalism is real but not immutable.” (Firstlinks, The
and Against US Stock Market Exceptionalism) Case For and Against US Stock Market Exceptionalism) By

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