Global pension funds are reducing their exposure to U.S. equities amid growing concerns over concentrated risks linked to artificial intelligence (AI) stocks and high market valuations. Large pension schemes such as Australia’s Australian Retirement Trust (ART), Canada’s La Caisse, and the United Kingdom’s People’s Pension have reported holdings below key global benchmark indices, reflecting a diversification strategy away from U.S. stocks.
The U.S. market’s recent performance has been significantly driven by a small group of technology and AI-focused companies, including Nvidia, Alphabet, and Microsoft. These stocks have propelled the S&P 500 to new highs but have also resulted in an unprecedented level of market concentration. Currently, more than one-third of the S&P 500’s total market capitalization is tied to large-cap companies closely linked to the AI investment cycle, increasing what market participants describe as concentration risk.
Jimmy Louca, senior portfolio manager at ART, which manages approximately US$260 billion, acknowledged that the fund has reduced its relative position in U.S. equities this year compared with the MSCI World benchmark. Louca cautioned that while he does not foresee a severe market crash akin to the dotcom bust, many valuations in the AI sector and broader U.S. equities now appear extended. He emphasized the importance of diversification, noting, “the market’s moved more than what fundamentals would justify.”
A recent report from consultancy Marsh surveyed 430 institutional investors managing over $5 trillion in assets and found that a third of these entities planned to decrease their U.S. equity exposure within the next 12 months—twice the level reported last year. The report highlighted that geographic exposure to U.S. equities has become tightly equated with sector and factor concentration, primarily driven by the dominance of a handful of technology stocks.
Canada’s La Caisse, with US$388 billion under management, continues to hold U.S. equities as its largest regional exposure, but portfolio managers are increasingly concerned about the sustainability of earnings growth and valuation risks. Vincent Delisle of La Caisse described AI-related risk as “the single most important factor determining how we want to position ourselves in equity markets” and stressed the need for a patient, diversified approach despite past penalties for avoiding heavily concentrated tech stocks.
UK’s People’s Pension, managing approximately £45 billion, has also cut its U.S. equity weight in its main fund to 49% from 53% at the end of last year. This remains significantly lower than the MSCI All Country World Index’s current U.S. allocation of 64%, illustrating a clear move towards broader global diversification.
Overall, these shifts underscore a growing caution among major pension funds regarding elevated valuations and risk concentration within U.S. technology equities. Managers appear keen to balance potential growth areas such as AI with broader risk management through diversified global portfolios.