Don’t ditch US equities in retirement portfolios: Principal AM

Yasmine Raso

Senior Journalist, Financial Newswire

5 August 2025

New commentary from Principal Asset Management has stated the case for US equities to continue as a “cornerstone” of retirement portfolios, encouraging investors to block out the noise and focus on the fundamentals.

Mike Reidy, Client Portfolio Manager at Principal Asset Management, said a perfect storm of “slower GDP growth, rising national debt and geopolitical tensions” has raised concerns from investors and forced them to search for opportunities in other markets.

However, Reidy maintains that the “argument for US exceptionalism remains compelling” particularly for retirement portfolios, weighed down by “by enduring fundamentals that support long-term growth”.

“Historically, periods of scepticism regarding U.S. equity performance were often followed by renewed outperformance,” Reidy said.

“Consider the following instances:

• Post-Global Financial Crisis (2009–2011): After the 2008 crisis, many questioned whether U.S. equities could recover. Yet, a combination of aggressive monetary and fiscal stimulus led to a remarkable rebound, with the S&P 500 gaining over 400% by 2021.
• Early 2010s Eurozone recovery: As Europe stabilised, some investors shifted their interest to European equities, believing they would outperform the U.S. However, the tech sector’s resurgence in the U.S. economy propelled American stocks ahead.
• Post-Pandemic rotations into China/EM: Following the onset of COVID-19, there was a surge of interest in emerging markets, particularly China. Nevertheless, U.S. companies demonstrated remarkable resilience, innovation and adaptability, leading to a sharp recovery in equity prices.

“In most instances, U.S. equities surpassed their global peers (India stands out, outperforming the U.S. post-COVID). Still, robust earnings growth, innovation, and consumer strength have fuelled the U.S.’s outperformance.

“For retirement investors, responding to changing narratives instead of concentrating on fundamental factors has frequently led to missed chances for long-term compounding. Notably, the U.S. is one of the few nations that has returned to its pre-pandemic growth trajectory.”

Reidy noted that while international equities has benefitted from tariff- and global tension-induced volatility in the US market coupled with global central banks commencing cycles of monetary policy easing, US equities remain well positioned to deliver for retirement investors over the long-term.

“Another notable trend is the waning demand for U.S. dollar-based assets, raising questions about whether this is a short-term fluctuation or the start of a longer-term shift.

“Investors are particularly excited about the potential impacts of forthcoming fiscal policies and the rapid advancements in AI innovation, especially in China. These factors have created a crowded trade, pushing AI’s international equity valuations skyward, often without the fundamental support typically required for such price levels.

“To sustain this momentum, firms outside the U.S. must show tangible growth and performance metrics that align with heightened expectations and substantial capital inflows into these markets.

“Our overweight U.S. equities position in target date portfolios reflects conviction, not complacency. For retirement investors, U.S. equities continue to offer the innovation, resilience, and reliability needed to create the opportunities that support financial outcomes over decades, not just temporary market cycles.

“While global diversification remains a critical component of a well-diversified investment strategy, an allocation to U.S. equities should remain the foundation of any retirement portfolio. Investing with a focus on fundamentals rather than narratives will enable investors to capitalise on the enduring strength of U.S. markets, ensuring a more secure financial future.”