Fidelity Answers: Where should I look if I need to play defence?

So, uh, I'm going to start, Tristan, with you.

Uh, I mentioned the, the growing concern in the intro about concentration.

Um, i- is it a valid concern?

I think so.

So, you know, the US is now nearly 70% of global equity markets.

Um, and even within the US about half of it is in tech, as you mentioned, so that's around 40% of the global market in these US tech companies.

Most of which, you know, from our perspective they don't pay a dividend over 1%, so for us it's a huge chunk of the market that we don't really look at.

Um, and if you look back historically, it's not always been the case that the US is the best place in the world to invest.

Um, it seems to be perceived that way today, but if you think back to the early 2000s you had a period where the rest of the world was outperforming the US.

You had the rise of China, and that flowed through into Europe, um resources companies and so on.

You look back at the early '80s, or most of the '80s, uh, Japan was the only place that was seen to be the...

To have worthy of investing.

Um, you know, at the time Japan I think was 20% of global GDP roughly, and it was actually 40% of world markets.

So you compare that today with the US at 70% of world markets, and it's still only 25% of GDP.

And I don't think, um, I need to tell anybody how investing in Japan in the late '80s or putting 70% of your capital-

Mm

... or half your capital in Japan in the late '80s would've worked out.

So I think markets do obviously go through periods of incredible concentration, um, and it's worked well for a very long time to be in passives and to follow the benchmark.

But, you know, clearly putting all your eggs in one basket is not necessarily the best thing to do.

Now, of course, in the past investors would have perhaps approached a market like this by rotating into, uh, you know, as we call the more defensive sectors.

H- how has that worked recently?

So for us, we don't try to create a defensive portfolio by just taking large top-down allocations to the defensive sectors like staples, utilities, um, pharma and so on, um, because if you do just take these big blanket allocations there, you can still have something come along and hit you.

It'll hit the whole sector at once.

So last year, or the last couple of years for example, you had, um, RFK and all the tariffs and most favored nations policies hitting pharmaceuticals.

So even though it's a defensive sector it still got hit.