With US equities increasingly dominated by a handful of mega-cap stocks and global markets facing heightened geopolitical uncertainty, investors are questioning how best to protect and grow their wealth.
In this interview, Gulf Business speaks with Angelina Lai, chief investment officer for Asia & Middle East at St. James’s Place (SJP), about how the firm is addressing the “US Concentration Conundrum”, the importance of diversification for Middle East investors, and why regions such as Europe, Japan, and emerging markets are offering attractive opportunities.
The latest CIO Quarterly Insights highlight rising concentration risks in the US market, with just 10 mega-cap stocks representing over a third of the index. How does SJP approach this “US Concentration Conundrum” in managing client portfolios?
The US market now represents two-thirds of global equities, with the 10 largest stocks in the US making up more than a third of the index, up from under a fifth just 15 years ago. At St. James’s Place, we see this as a significant risk.
A key question on most investors’ minds is what this means for their long-term portfolios. We believe it is important to follow a disciplined process. Our process is led by valuations, informed by a number of factors including fundamentals of the asset class, the economic environment, behavioural signals, and we remain mindful of the tail risks within the portfolio.
As such, while the US remains a cornerstone of our global investment portfolios, we are acutely aware of the potential perils posed by such a narrow market leadership at expensive prices. All investments involve risks; our approach looks for the risks with the best value, thereby giving our clients the best chance of achieving great long term returns.
These, coupled with sound diversification across asset classes, geographies, sectors, and investment styles, aligned with long-term investment goals and risk preferences of individual clients, allow us to construct portfolios that are more balanced and resilient through any stress events such as Liberation Day, while still capturing global growth potential.
Given the geopolitical uncertainties in the US and Middle East, how important is diversification for investors in the Middle East, and which regions or sectors does SJP currently see as most attractive?
In a region as geopolitically dynamic as the Middle East, diversification is essential. Investors here face unique challenges, from fluctuating energy prices to regional political tensions, and these factors can have a profound impact on local markets and investor sentiment.
Our approach at SJP emphasises the importance of global diversification as a way to insulate portfolios from regional volatility and to access broader sources of growth.
Currently, we see compelling opportunities in European and Japanese equity markets. Many European firms offer attractive value, trading at a discount to US. stocks while benefiting from falling inflation, easing rates, and increased investment in infrastructure and defence, with a diversified sectoral composition.
Japanese equities have also been gaining momentum thanks to corporate governance reforms, rising shareholder returns, a shift away from deflation, strong earnings and a significantly undervalued yen as measured by long-term purchasing power parity. The yen historically also provides a great diversification benefit to global equities.
After years of under performance, our managers find many attractively priced investment opportunities in emerging market (EM) equities as well. Asia in particular is home to some of the world’s most dynamic technology firms, which are driving innovation and commanding significant market share in areas like semiconductors, e-commerce, and renewable energy.
Challenges remain, including geopolitical tensions, elevated US interest rates, and tariff threats.
However, history shows that prolonged market underperformance often sets the stage for significant rebounds.
Smaller companies and value stocks should not be overlooked on a global basis, as they are also priced at relative discounts to their larger and more growth-oriented counterparts and could further aid portfolio diversification and resilience.
By spreading investments across these diverse regions and sectors, we help clients in the Middle East build portfolios that are both robust and forward-looking.
The report mentions that SJP is underweight US equities in its core portfolios. Can you elaborate on the rationale behind this positioning and how it aligns with the firm’s long-term investment philosophy?
At the core of SJP’s investment philosophy is a structured framework that evaluates asset classes based on valuations, taking into consideration fundamentals, economic environment, behavioural flags and tail risks. This disciplined process is designed to remove emotion from decision-making, ensuring that portfolio positioning reflects objective analysis rather than reactive behaviour.
The recent success of the US market has led to increasingly expensive valuations, even when taking into consideration the solid fundamental qualities of many of the companies listed in the US. The US economy still has a strong footing; however, trade and fiscal policy uncertainty are disruptive, particularly with the continued uncertainty around tariffs causing a number of businesses to pause on business or investment decisions, and we are starting to see inflation move higher while labour supply is beginning to slow.
Concentration risk, as noted earlier, of the mega caps – many of which are within the same sectors – increases the overall tail risk of the asset class.
Having said that, US equities still make up around half of our equity allocations and thus remain a key part of our portfolios.
How does SJP tailor its asset allocation strategies to meet the specific risk tolerances and financial goals of Middle East clients, especially in such volatile global markets?
St. James’s Place takes a highly personalised approach to investment advice for all clients, applying the same principles in the Middle East while recognising the distinct circumstances, financial goals, and risk tolerances found in the region.
Our journey with any client begins with understanding their unique circumstances through a ‘Confidential Financial Review’. This allows us to build a full picture of their financial profile, goals, and investment time horizons, as well as their tolerance for market volatility (in both bull and bear markets), income and currency needs, tax and legacy considerations, and any allocation preferences and aversions.
This insight enables us to ensure that portfolio allocations are suitably aligned with individual objectives and preferences.
Talking about volatile markets prior to the event and “rehearsing” these scenarios with our clients helps ensure they do not make knee–jerk reactions during actual stress events. This enables us to take advantage of the opportunities that often comes with volatile markets, where our managers may be picking up great businesses at more desirable values.
Ultimately, our aim is to provide investors in the Middle East with strategies that are both globally informed and locally relevant.
With ongoing tensions impacting global supply chains and energy prices, how is SJP incorporating macroeconomic and geopolitical factors into its investment advice for clients in the region?
At SJP, macroeconomic analysis (including the assessment of geopolitical impact) is a key part of our disciplined investment decision-making process.
Our ‘Group Economic Views’ forum actively screens and continuously monitors economic activities globally – from supply chains, energy prices, and employment data to capex spend and consumer sentiment. These insights feed into a monthly report on our views of the current economic environment, which are reviewed against our asset views, specifically whether the environment creates headwinds or tailwinds for key asset allocations. Portfolios are also tested against various economic scenarios, including historical stress events as well as hypothetical events, to assess the resilience of our portfolios.
These processes reflect our investment principles, which are rooted in the belief that wealth is best built through patience, discipline, and strategic allocation, rather than attempting to time the market or chase short-term trends. By integrating macroeconomic insights with a robust, diversified portfolio framework, we ensure that our clients receive investment advice that is both responsive to global developments and anchored in enduring principles. This helps investors stay focused, confident, and in control, even when the world feels anything but predictable.
Investor sentiment appears cautiously optimistic despite volatility. How does SJP help clients maintain discipline and focus on long-term goals without reacting to short-term market noise?
Investor anxiety has moderated in recent weeks – the latest tariff announcements notwithstanding, and volatility remains a constant in markets, particularly with a number oftariff deadlines still coming up and continued unpredictability to Trump’s policies. Incorporating sound risk management into portfolios, especially during periods of relative optimism, helps ensure they can withstand more turbulent conditions when they arise.
A key part of our role is helping clients maintain discipline and avoid short-term, emotionally driven decisions that can harm long-term returns. We achieve this through regular communication, a focus on goal-based planning, and by keeping attention on long-term objectives – whether that’s retirement planning, wealth preservation, or legacy building, rather than reacting to daily market noise.
Read: Prioritise the fundamentals when investing’, says SJP’s Martin Hennecke
