The first half of 2025 gave us a real flavour of life without the concentration of winners amongst US (exceptionalist) mega caps. Indeed, within the MSCI World ACWI index, only 6% of performance was attributable to those seven names combined. Admittedly, that was also due to the unusual dispersion of returns within those seven names ranging from Tesla at the bottom, down 21.3% in the first half of the year, to Meta at the top, up 26.1%.
What made the dispersion and rotation even more pronounced was the impact of a weaker US dollar on available returns to equity investors. The euro rose by 13.8% against the US dollar in the first half, resulting in both depressed returns for non-US investors but also the lure of exciting returns for US investors outside their home market. The graphs below show the returns from M7 names in both US dollars and euros to highlight this point.
Source: Bloomberg, June 2025.
We can start to see that for the first time in many years, investors are being asked to question the multi-year trade of passive S&P focused investments. A US dollar investor was able to make significantly more from international markets. While +5.5% was on offer from the S&P 500, the DAX in Germany gave a US dollar return of 35.9% in the first half!; the Nikkei, also in US dollars, provided +10.6% and the UK FTSE 100 +17.4%.
However, it was not as simple as a geographic allocation decision; the almost 7% return from the STOXX Europe 600 in the first half of the year was attributable entirely to banks, SAP, Siemens Energy and Rheinmetall. Investors needed to be highly active in both geographic allocation as well as stock picking for best results.
In addition to better equity returns being available outside the US, alternative assets pushed on too. Gold rallied by 25.9% and Bitcoin by 14.8% as concerns mounted over the solidity of the US dollar and the level of interest being required to service America’s ballooning debt levels. At the same time, the vacillations of the US administration raised levels of volatility.
On fundamentals, earnings expectations have been cut across all geographies except for emerging markets. The chart below from SG Cross Asset Research shows the US has led with a full 5% of cuts in growth forecasts.
Returns in US dollars
Source: SG Cross Asset Research/Equity Quant, I/B/E/S, June 2025.
This trend will need to stabilise in the second half of the year to avoid a profit decline in some markets. The second quarter 2025 reporting season therefore takes on added significance.
The Initial Public Offering (IPO) market was a highlight of the first half of 2025 – $100 billion of IPO proceeds in the US market was the highest level of activity since 2021 (Source: Pitchbook, June 2025). The rest of the world was more muted and has not seen returning volumes, but US tech-led deals blazed the trail. The biggest among these were a number of eagerly anticipated tech names. CoreWeave (AI infrastructure) and Circle Internet (stablecoins) made stunning debuts, rising by 407% and 584% respectively to 30 June 2025. In both cases, these are sizable companies ending the half year with market caps of $78 billion and $40 billion. The surge in share prices has led to nosebleed valuations; CoreWeave trades at a half year end valuation of 17.3x revenues and Circle at 16x.
Both of these companies play into topical themes, and we have written about these below. CoreWeave is a provider of AI infrastructure on a subscription basis to companies needing additional compute (see Tech Stack or Smoke Stack) while Circle is a leading stablecoin issuer (see Stablecoin Summer – Full Circle).
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Equities team:
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares.
- May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
- May invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of a fund over the short term.
- Certain countries have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions.
- May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
- May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
- May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
The risks detailed above are reflective of the full range of Funds managed by the Global Equities team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
