UK pension funds are reducing their holdings in US equities due to concerns about an AI bubble and the concentration of tech stocks. Funds managing over £200 billion are shifting assets to other regions or hedging against potential stock price declines. This comes as the tech-heavy Nasdaq Composite has surged, driven by the 'Magnificent Seven' stocks, raising fears of a market correction.
The European Central Bank, the Bank of England, and the IMF have cautioned that US tech stock valuations appear stretched, increasing portfolio vulnerability if optimism fades. One fund is redirecting new pension contributions towards private markets to diversify away from large tech stocks. Experts suggest diversification is crucial, though some note that current tech companies demonstrate earnings growth unlike in previous bubbles.
The top 10 companies in the S&P 500 account for approximately 40% of the index's total market capitalisation, which is historically high. Pension funds' reallocations reflect concerns about narrow market breadth, detached valuations, and geopolitical risks concentrated in one supply chain node.
