Have US assets lost their shine?

The debate over the longevity of US equity dominance has gained renewed urgency, thanks to US President Donald Trump’s trade war. With geopolitical friction, economic policy uncertainty, and technology rivalries creating fresh fault lines, many institutional investors are wondering whether it's time to reallocate, or even pull out, from US assets.

While Michael Sager isn’t convinced the exodus has begun, he notes the mood has clearly shifted.

“We started the year, I think, like everybody did, fairly bullish about the US and therefore fairly bullish about US assets and the whole story of US exceptionalism,” said Sager, managing director and chief investment officer at CIBC Asset Management.

He explained that outlook was rooted in expected leadership in economic growth and innovation, particularly within the tech sector. Investors believed that this combination would propel both equities and the dollar higher. Adding to that confidence was the belief that the Trump administration’s economic agenda, focused on deregulation and fiscal expansion, would support continued growth. The less market-friendly components, such as tariffs and immigration crackdowns, were expected to play only a minor role.

“There was a sense that tariffs would not be too important and wouldn't, in the long term, diminish the positives,” he said. But what followed defied expectations.

“We all got a nasty shock because trade and immigration have been prioritized, and we're only now just getting round to the good stuff in terms of growth,” added Sager.

Meanwhile, Ian Riach, senior vice president and portfolio manager at Franklin Templeton Investment Solutions, describes the performance of US assets in 2025 as “pretty volatile” citing growing uncertainty around trade policy as a key trigger. While it was widely understood that President Trump would target trade relationships, Riach noted that the rapid escalation and early focus on North American partners caught many off guard.

“It was no secret that he was going to at least threaten some form of renegotiation of trade with his key partners,” he said. “At the start we thought that he was just going to focus on China generally as the enemy, and maybe Taiwan and Korea on the tech side. We didn't really think his fight was with Canada. But right out of the gate, he focused on us and Mexico and that’s changed a little bit now but it's created a lot of uncertainty, a lot of volatility.”  

What surprised Riach most was how sharply that policy uncertainty translated into a shift in sentiment, both domestically and globally as that unease was visible in equity markets, where the S&P 500 dropped roughly 20 per cent from February highs to its April low, compared to more modest declines of 11–12 per cent in Canada and Europe, he highlighted.

“The largest drop of course came after his so called “Liberation Day”, when he announced retaliatory tariffs, so the equity markets are in pretty significant decline. We've seen this reflected in the US dollar as well because it's down against all major currencies,” he added.

Still, Riach isn’t calling for a wholesale rejection of US equities. While the luster of US exceptionalism seems to have dulled a little bit, he believes it hasn’t fully disappeared.

“I don’t want to say it’s completely soured but since the announcement or the threat of all these tariffs, sentiment has really shifted to the downside,” he said.

The volatility that’s followed hasn’t necessarily prompted a full retreat from US equities, but it has prompted a reckoning among investors, causing global asset allocation in portfolios. According to Riach, many investors had leaned heavily into US assets over the past few years, riding a wave of strong returns rooted in the narrative of US exceptionalism. But as that narrative has come under pressure due to trade policy and valuation concerns, portfolios are being recalibrated.

The key driver, he said, is relative valuation.

“Even with this bit of a valuation reset that the US has had, the PEs are still higher than long-term averages,” he noted. Contrastingly, regions like Canada and Europe, Australasia, and the Far East (EAFE) areas are trading at or below their long-term valuation metrics, making them more attractive on a risk-adjusted basis.

He also acknowledged that while there’s been strategic interest in emerging markets over the past decade, current investor behavior suggests a pause in that momentum, at least for now.

“I don’t think anybody’s really moving to emerging markets on a wholesale basis right now,” he said, pointing to trade-related uncertainty as the primary headwind. Additionally, given many emerging markets’ reliance on China, who is a central player in the US trade war, investors are treading lightly before making any rash decisions.

“We need to see a little bit more transparency on how some of those emerging markets are going to be affected with the trade policy between China and the US,” he explained.

Sager also pushed back on the notion that institutional investors and sovereign funds are abandoning US assets en masse, arguing that while the investment climate in the US has become less welcoming, there’s no clear evidence of widespread divestment.

He also dismissed the long-circulated theory that countries like China are dumping US Treasuries as part of a global retreat from the dollar.

“There’s been a lot of talk that the US dollar was losing its dominant status as the reserve currency…that’s just not true,” he said, emphasizing while China has sold Treasuries, it has simply reallocated those funds into other US assets, such as agency bonds.

Riach suggested that the worst of the market reaction to US tariff threats may already be behind us, noting recent signs of recovery in equities. This rebound, he explained, could indicate that the market has already priced in the damage from earlier tariff announcements. With that in mind, he cautioned against exiting US equities at this stage, arguing that the opportunity for tactical withdrawal may have passed.

“Abandoning the US right now is probably not the way to go,” he said.

Sager reinforced that investors should avoid overreacting to headlines or short-term downturns, despite how tempting it may be in volatile markets.

“There’ll be good days and there’ll be bad days, the key thing is to stay invested,” said Sager, adding that long-term investing as a discipline is rooted in strategy, not emotion. Whether managing funds for growth-focused foundations or liability-driven pension plans, he stressed that strategic asset allocations should be reviewed regularly but not rewritten in reaction to market jitters.

“Equities are the cornerstone of accumulation,” he said. “Unless your goals and objectives change, then there’s no reason your strategic allocation should change.”