Is it wise to transfer your funds outside of the US?

The idea that the US and its economy are superior to and different from other countries is known as "US exceptionalism," and it is currently facing criticism

For decades, the US has dominated the world economy and stock market, to the point where it seemingly cannot be challenged. However, does US exceptionalism have an end in sight?

Retail investors pulled 817 million out of UK equity funds and 948 million into North American-focused equity funds in April, according to the Investment Association's most recent fund flow data, despite the fact that the tariff fallout caused the value of US stocks to decline.

Investors "willing to take on more risk have been buying the dip as valuations have fallen," according to the Investment Association's director of market insight, Miranda Seath.

That purchase will appear to be a wise choice if the markets return to normal. However, will that actually occur?

The dominance of US stocks in international investing has been so long-standing that it begins to seem inevitable; American companies are inherently destined to perform better than their international counterparts.

After all, the US economy is the largest in the world, right? Well, yes, but if that's how investors should allocate their money, then US stocks are already far above their fair value. Approximately half of the world's stock market is held by US companies, despite the US contributing 27.7% of the world's GDP in 2024.

Stated differently, US stocks are almost twice as costly as they should be given the nation's proportion of the world economy. Examining international trackers such as the MSCI World Index, which is currently weighted 71.4 percent in favor of the US, makes the numbers appear even worse.

However, 2025's events thus far have raised the possibility that the idea of US exceptionalism may be in jeopardy. The DAX reached multiple new all-time highs in May, while European markets surged while the S&P 500 fell amid the tariff chaos of April.

The head of equity research at Hargreaves Lansdown, Derren Nathan, wrote, "It's too early to call the end of US exceptionalism," but there are indications that investors are trying to diversify.

US exceptionalism: what is it?

Generally speaking, "US exceptionalism" refers to the widely held notion that the US is superior to and qualitatively different from other countries.

This perspective ascribes intangible attributes to the US and its people, such as superior work ethics, and draws on well-known clichs from American history, such as the American dream.

A more economically motivated form of US exceptionalism, which holds that the US economy is inherently better than others, is then fueled by those. Some who support the idea might contend that Americans are more productive by nature or that US institutions and laws make the country's economy more competitive.

The US's enormous dominance in the world economy makes it an easy doctrine to adhere to, even unconsciously.

But, especially in financial markets, it causes some distorted behavior. US stocks trade at about 22 times earnings, while stocks in other regions of the world trade at about 15 times earnings, according to Rob Perrone, an investment specialist at Orbis Investments.

Perrone remarked, "Who woke up last year thinking they'd get rich off European stocks? No-one." "Many people woke up last year with the expectation that they would become wealthy from American stocks, and the price already reflects the fervor of previous buyers.

Is the US no longer an exception?

Many have started to wonder if the idea of US exceptionalism is in danger given the shocks that have hit the US economy and stock market so far this year.

Chief investment officer William Marshall of Hymans Robertson Investment Services stated, "The performance of the US markets for the majority of the first five months of the year has been far from exceptional."

This year's major stock market shocks in the US have all called into question various facets of US exceptionalism.

For instance, the rise of DeepSeek, which hit at the core of the notion that the US was the world's center of technological innovation and that its companies had a de facto monopoly over the development of artificial intelligence (AI), sent the S&P 500 down 1 point 5 percent in a single session.

The tariffs imposed by Donald Trump provide an intriguing example. Although the US could theoretically be excluded from the globalized system that has seen its wealth soar over the past century if it were to impose tariff barriers on its trading partners, the tariffs themselves can be seen as a symptom rather than a cause of the US's exceptionalism's unraveling.

They are an attempt by Trump to lower the US government's debt, which is becoming unmanageable. If tariffs are maintained, the nonpartisan Congressional Budget Office calculated last week that they could lower this debt load by £2.08 trillion.

Undoubtedly, government expenditures are to blame for the nation's high debt, but the Trump administration faces the dilemma of undoing this trend at the expense of the very economy and businesses that initially benefited from it.

According to Perrone, Milton Freidman compared inflation to alcoholism, and the same is true of debt: enjoyable while you're spending, a sickening headache when you stop. "The US government's debt-fueled spending spree has greatly benefited US corporations. The United States has reduced taxes on an already growing economy, run war-level deficits during peacetime, and spent on everything from chip subsidies to stimmy checks.

The markets' strong reaction to efforts to reverse this is therefore not surprising.

"This year, there were periods when the dollar, US stocks, and bonds all fell simultaneously. That is the kind of behavior you anticipate from a developing market. The world's most prestigious stock market, a proven risk-free investment, and the world's reserve currency is not what you would expect," Perrone said.

It's also important to note that US bonds and the dollar haven't recovered to their Liberation Day levels, even though US stocks have. Perrone claimed that while bond and currency investors, who are paid to worry all day, are more cautious, equity investors, who are paid to be bullish all day, maintain their confidence. "In the United States, confidence has declined.

Investment strategies to end US exceptionalism.

There are a few things you can do to safeguard your portfolio if you do think that the US exceptionalism era is over.

According to Marshall, the difficult start to the year for US markets "has given investors a useful reminder of some investment basics." These include realizing that volatility in stocks is influenced by sentiment and that investors can benefit from global diversification.

As possibly undervalued markets to diversify into, Perrone suggests the UK and Japan.

He claimed that the UK had a large number of inexpensive stocks and reputable businesses with high dividend yields. Many of these businesses operate primarily in other countries, but they trade at a steep discount to their peers that are listed in the US.

Japan, according to Perrone, "offers both reasonably valued stocks and a deeply undervalued currency."

Marshall is not sure if it is time to sell US stocks. In addition to our desire for diversification, he stated, "We will continue to hold US assets in our portfolios because we are global investors at heart."

On the other hand, some analysts believe that European investment trusts may be poised for expansion as the continent approaches a period of economic recovery.