Investors have BENEFITTED from this approach, strategist says

Key Concepts

• Global Diversification: Shifting investment strategy from primarily US large-cap stocks to a broader, international allocation.
• Rotation to Broader Market Performance: A move away from concentrated investment in large-cap tech towards small-cap, mid-cap, and international equities.
• US Consumer Strength: Despite warning signals from some companies, overall consumer spending remains robust due to wage growth exceeding inflation.
• AI Spending Cycle – Global Impact: The benefits of the Artificial Intelligence boom are extending beyond US companies to include international firms.
• Local Champions: The advantage of directly investing in international markets to access leading companies native to those regions.

Investment Strategy: Shifting from US Large-Cap to Global Diversification

Tom Hanland, US Bank Asset Management’s National Investment Strategist, advocates for a shift in investment strategy from a concentration in US large-cap technology stocks to a more globally diversified approach. He notes that while 2023-2025 favored large-cap tech, a rotation towards broader market performance has been underway, accelerating into 2026. This rotation is fueled by the positive effects of tax cuts and rate cuts benefiting smaller companies. Specifically, small-cap and mid-cap stocks have begun to outperform large caps, and foreign markets (Europe, Japan, and emerging markets) demonstrated outperformance in the previous year, a trend continuing into 2026. Hanland clarifies this isn’t about exiting US equities, but rather allocating incremental investment dollars towards global exposure. He describes this as a “broad meltup in global equities writ large.”

The US Consumer & Economic Outlook

Hanland addresses concerns about the US consumer, acknowledging that while aggregate data shows continued strength – wages exceeding inflation and translating into retail sales – there are varying experiences across different demographics (homeowners vs. renters, age groups, income brackets). He maintains a positive outlook for the US economy in 2026, contingent on the absence of re-accelerating inflation that would curtail consumer demand and spending. Upcoming economic indicators, including the Q4 GDP first print and the December PCE inflation number, will provide further clarity.

Specific Investment Vehicle: iShares MSCI Europe Asia and Far East ETF

To facilitate global diversification, Hanland highlights the iShares MSCI Europe Asia and Far East ETF (EFA) as a viable option. He emphasizes that this ETF provides access to “best-in-class” international companies like Nestle, Novartis, Shell, Toyota, and Siemens. This contrasts with relying solely on US multinationals for foreign exposure, as direct investment in international markets allows access to “local champions.”

The Global AI Spending Cycle

Hanland points out a crucial aspect of the current economic landscape: the Artificial Intelligence (AI) spending cycle is not solely a US phenomenon. Companies domiciled outside the US are also benefiting from this growth, offering another reason to diversify internationally. This allows investors to capture opportunities beyond the US-centric AI narrative.

Performance Examples & Supporting Data

The discussion includes examples of recent strong performance in international companies: Rogers (Canada) with “unbelievable performance” over the past three months, Novartis (17-18% gain), and HSBC (10% gain). These examples support the argument for the potential benefits of international exposure. While specific figures weren’t provided for the overall outperformance of small/mid-cap vs. large-cap, the trend was clearly stated.

Can US Multinationals Substitute for Direct International Investment?

Hanland directly addresses the question of whether investing in US multinationals provides sufficient international exposure. He argues that it does not, as direct investment in international markets provides access to local champions – companies that dominate their respective regional markets.

Notable Quote

“One of the questions is always, can I not just get foreign exposure through US multinationals? And when you invest in international markets directly, you get those local champions.” – Tom Hanland.

Technical Terms

• Hyperscalers: Extremely large-scale cloud computing providers (e.g., Amazon Web Services, Microsoft Azure, Google Cloud).
• ETF (Exchange Traded Fund): A type of investment fund traded on stock exchanges, holding a basket of assets (like stocks) to track a specific index or strategy.
• PCE (Personal Consumption Expenditures) Inflation: A measure of the price changes for goods and services purchased by consumers, used by the Federal Reserve to gauge inflation.
• Domicile: The country where a company is legally incorporated and considered its primary residence.
• MSCI (Morgan Stanley Capital International): A leading provider of investment performance benchmarks and indexes.

Logical Connections

The conversation flows logically from identifying a potential risk (over-concentration in US large-cap tech) to proposing a solution (global diversification). The discussion then delves into the economic rationale for this shift (US consumer strength, global AI spending) and provides a concrete investment vehicle (iShares MSCI Europe Asia and Far East ETF) to implement the strategy. The examples of strong-performing international companies reinforce the argument.

Synthesis/Conclusion

Tom Hanland advocates for a strategic shift towards global diversification, arguing that the benefits of this approach – access to broader market performance, local champions, and exposure to the global AI spending cycle – outweigh the risks of remaining heavily concentrated in US large-cap technology stocks. While not suggesting a complete exit from US equities, he recommends allocating incremental investment dollars to international markets, particularly through ETFs like the iShares MSCI Europe Asia and Far East ETF, to capitalize on emerging opportunities and mitigate potential risks. The overall message is one of proactive portfolio management in a changing economic landscape.