How are you managing downside risk as global equity markets hit record highs?
Richard Rainback, global head of ETF & fund selection, EFG International: Actively managed funds are key to managing downside risk while equity indices are at record highs. Index-tracking products can capture strongly during risk rallies, but passive investorsremain fully exposed when markets reverse. Active fund managers investing in fundamentally strong stocks with defensive attributes are key to navigating this environment.
While these products often lag in sharply rising markets driven by lower-quality stocks, they can be risk-management tools and are rewarded when markets eventually recognise fundamentally strong companies. This applies to both global and regionally focused equity products.
Steven Cohen, senior investment analyst, Sparrows Capital: Our approach avoids emotional decisions by focusing on strategic asset allocation over market timing. The equity component targets long-term growth through diversification across developed and emerging markets, while the fixed interest allocation includes government and inflation-protected bonds to help cushion equity market drawdowns during volatility.
Our SCore MPS models are structured in 10% equity increments, helping advisers match portfolios to clients’ risk tolerance and long-term financial needs.
James Burns, head of MPS, Evelyn Partners: We maintain a modest overweight in global equities, supported by resilient earnings, especially in the US, where AI-driven investment continues to support growth. While mindful of elevated valuations and market concentration, we remain underweight US equities versus the MSCI ACWI.
We remain geographically diversified and stylistically neutral, investing selectively across growth and value companies to provide further diversification. Equity downside mitigation primarily comes from our multi-asset approach, using government bonds and diversifiers such as hedge funds and gold.
Luca Bindelli, head of investment strategy, Lombard Odier: We remain invested and moderately pro-risk, although volatility could flare. We manage downside risk through diversification and selective exposures, particularly in emerging markets.
At the strategic level, we maintain shock absorbers, including gold and convertible bonds, which can capture equity upside while providing downside protection. We also emphasise disciplined rebalancing and monitoring of key shock channels, including energy supply routes and tariff-driven inflation.
Amrish Patel, senior research analyst, Aviva Investors: We emphasise downside protection by backing strategies that are resilient when sentiment turns. We assess how managers have navigated past market stress scenarios and favour approaches that avoid chasing market euphoria and remain anchored to fundamentals and valuation. Rather than accepting prolonged benchmark lag, we seek managers mindful of benchmark dynamics in concentrated markets while maintaining risk discipline. This helps ensure our global equity line-up remains resilient across cycles, not just in benign markets.
“Across the US and Europe in particular, we prefer smaller companies.”- Richard Rainback
Where are you seeing relative value, and what looks most stretched?
Richard Rainback: We currently favour the US and Europe, while remaining cautious on Asia ex-Japan. In both the US and Europe, we prefer smaller companies. Within this segment, we favour active management over index-tracking products given the size of the investable universe and the number of non-profitable companies.
At the sector level, we are more positive on healthcare, particularly in the US and Europe. Although the sector has struggled recently, we believe selected areas are poised for a rebound. We take a more cautious view on Consumer Staples, where we believe attractive opportunities are limited.
Steven Cohen: As passive investors, we do not seek to identify value regions or sectors within our model portfolios. Our equity exposure tracks the global index, meaning we hold the market as it is and accept that index weightings reflect the collective wisdom of global market participants, without making active tilts or attempting to identify stretched areas.
Some clients may want exposure to specific factors, as certain market segments have outperformed the broader market. Our SCore Factor models allocate equally across multiple factors, while allowing advisers and clients to select exposures aligned to their objectives.
“High concentration in mega-cap US stocks is a natural feature of market-cap weighted indices.”- Steven Cohen
James Burns: We are finding value across most markets outside the US, where valuations are less demanding amid improved sentiment. Our largest overweight is the UK, where valuations remain attractive, dividends provide defensive income, and the market’s sector mix offers resilience.
We are positive on Japan, where corporate governance reforms have improved the earnings outlook and investor sentiment. A weaker yen continues to attract foreign investors, while resilient global growth supports a market with a high share of overseas-derived earnings.
We remain more neutral on Asia and emerging markets, although valuations are relatively attractive and they provide exposure to companies that could benefit from the global AI investment cycle.
“Concentration risk around the largest US technology stocks is a focus for us as fund selectors.”- Amrish Patel
Luca Bindelli: Emerging markets are our standout preference, with stronger corporate earnings growth and an unusually wide valuation discount to global equities creating an attractive backdrop for selective risk. We remain neutral on US and eurozone equities, where valuations appear broadly fair and supported by earnings, but with less scope for multiple expansion.
Our highest-conviction sectors are IT, healthcare and utilities. IT benefits from the reset that has reopened opportunities, particularly in software, while healthcare and utilities offer resilient cash flows and structural tailwinds. Consumer staples remain the most stretched sector, with elevated valuations, muted growth and margin pressure.
Amrish Patel: We focus on managers who can identify differentiated sources of return beyond narrow market leadership. We expect caution and justification for exposure to crowded or speculative areas, particularly concentrated growth sectors where a structural thesis remains. This approach keeps our global equity selection anchored in valuation discipline and consistency across market environments. We prefer Japan, broader Asia, and parts of industrials and financials where fundamentals remain resilient despite cautious sentiment. We are also open to smaller market cap opportunities.
“Our biggest overweight is to the UK where valuations remain relatively attractive and dividends provide defensive income.” – James Burns
How are you managing concentration risk around mega-cap US stocks?
Richard Rainback: Ucits rules require active fund managers to be more diversified than their benchmarks, particularly in US growth equities, where the largest Russell 1000 Growth Index constituents exceed 10%, preventing neutral or overweight positions. We also view smaller companies in the US and Europe as an effective way to manage concentration risk and diversify exposure to mega-cap stocks.
Steven Cohen: High concentration in mega-cap US stocks is a natural feature of market-cap-weighted indices, where stronger-performing companies grow to represent a larger share of the market. Reducing this concentration in our SCore Market portfolios would introduce active risk and move away from our strategic asset allocation approach. Instead, fixed interest continues to provide downside protection, while lower-equity models naturally reduce concentration risk. Clients seeking more balanced exposures may prefer alternatives such as our SCore Factor models.
James Burns: The US remains our biggest single geographic allocation, and we see selective opportunities from continued earnings resilience, healthy profit margins, AI-driven investment and support from fiscal and monetary easing.
We retain longer-term concerns around market concentration and elevated valuations and, over the past 18 months, have diversified away from the index’s largest names, particularly towards healthcare, financials and energy. This has primarily been achieved through equity income funds, which tend to have lower technology exposure, and mid-cap-biased strategies skewed away from mega-caps.
“Emerging markets is our standout preference today”- Luca Bindelli
Luca Bindelli: Diversification is the antidote to mega-cap “gravity”. Rather than taking equity risk mainly through the US, IT-dominated markets, we diversify through allocations to Japan and emerging markets while keeping developed markets broadly neutral. Developed-market small and mid-caps also warrant consideration, with more compelling valuations than large caps and improving earnings momentum helping dilute concentration.
In sectors, IT remains a conviction, but we express it selectively rather than holding the largest index names. To maintain resilience when leadership rotates, we pair growth exposures with stabilisers such as quality dividend equities, which tend to offer attractive cash flows and lower volatility than the broader market. We seek to stay invested, capture breadth and avoid crowded trades.
Amrish Patel: Concentration risk, particularly in large US technology stocks, is a focus. We avoid overdependence on a narrow group of names by combining strategies with different styles, regional exposures and return drivers. Our objective is disciplined exposure that supports resilience through the cycle.
