I recently visited a Center Parcs resort with a very impressive water park. As I waded into the water, I braced for the inevitable splashing from excited fellow swimmers. Sure enough, within seconds, an exuberant youngster came barrelling in, hurled himself into the water and sent waves in all directions.

As we begin a new year, clients are wondering what to expect. One concern raised is concentration risk, especially in the US, where the technology giants have grown at an eye-watering rate. Tech’s weighting in the S&P 500 is up 6.3% over the last two years to 32.4% today. Given their size, the fortunes of these companies have the potential to send waves rippling across the wider market.

These tech giants are ramping up their capital expenditure to an extraordinary degree as they develop their capabilities in areas like artificial intelligence. This is reducing their available cash (free cash flow) and cutting future profit growth in the near term. For example, while the 'Magnificent 7'* are expected to generate earnings growth of 33% in 2024, the rest of the companies in the S&P 500 index (the ‘S&P 493’) are only expected to grow their earnings by 3%. However, as the chart below shows, in 2025 and 2026 this gap is expected to narrow dramatically. This is why we have increased our exposure to US companies beyond the big names. While we still expect strong earnings from the tech giants, they have high expectations to live up to, and there are plenty of opportunities elsewhere.

Markets have started the year cautiously, with Donald Trump expected to make considerable waves in his second term through significant shifts in US policy, including imposing higher tariffs on imports into the US. However, we believe the potential impact of tariffs on markets is likely to be offset by a gradual continuation of interest rate cuts, moderating inflation, deregulation and healthy company earnings.

Key takeaway: If you get into the pool, you should expect a few splashes! Investing comes with risks, which is the price you pay for a return. However, holding a diversified portfolio with an expertly managed blend of key global asset classes can help to manage risk. This is exactly what a diversified multi-asset portfolio provides.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.