Foreign appetite for US sovereign debt has been harmed by ongoing geopolitical turbulence, while some large investors have reported an interest in diversifying away from US-dominated market-cap-weighted indices (Al Drago/Bloomberg)
Reports of the US dollar’s gradual demise may not be entirely displaced, consultants tell AOX.
Foreign appetite for US sovereign debt has been harmed by ongoing geopolitical turbulence, while some large investors have reported an interest in diversifying away from US-dominated market-cap-weighted indices.
Concerns surrounding US tech stock valuations are one factor in this. Over the summer the European Central Bank warned that valuations were “close to their historical peak” and that a market correction was “likely”.
James Lewis, chief investment officer for the UK at Mercer, tells AOX the consultancy has reduced dollar exposure in its portfolios after the 2025 sell-off in equities and dollar [assets] “brought into question the reliability of the dollar at times of stress”.
Paul Convery, head of the £2.2bn Islington Pension Fund, says the scheme has yet to make investment decisions in response to the trend but points to what he describes as a “slow but visible decline” in the dollar’s status as the world’s dominant reserve currency.
There is, however, little evidence of a wholesale retreat as of yet. Chris Arcari, head of capital markets at Hymans Robertson, maintains that investment flows “have remained strong” despite the dollar’s weakness in 2025. He argues that investors have tended to increase currency hedging rather than substantially reduce their exposure to US assets.
At the same time, he notes that “there is some anecdotal evidence that new allocation[s] might be less [US-heavy] going forward”. The consultancy has received more enquiries and interest around this subject from investors.
It’s certainly too soon to call. There remain excellent reasons to invest in US assets, with its current outlook for economic growth being highest of the major developed economies.
Vincent McEntegart, co-manager of a diversified monthly income fund at Aegon, highlights that inflation is above target and is expected to fall, while continued corporate investment in AI-related activities means US real growth is forecast to be above 2 per cent a year.
Diversifying US dollar exposure may nevertheless be prudent portfolio management. There’s no guarantee that the market leaders of today will be the same tomorrow. But identifying the top of an investment cycle can be as difficult as spotting the next big opportunity.