Donald Trump has been quick to credit himself for the stock market’s momentum since taking office. While anchoring perceptions of his success to a bellwether that moves with a volatility that can be as much about sentiment as fundamentals may be a clever political narrative, it also carries the risk of misreading the broader forces at work. In the context of 2020 and beyond, such framing could eventually backfire if market performance diverges from the plain indicators of policy impact. Yet, despite the political theatre around the presidency, one clear truth remains: America remains the home of more world-class companies than any other nation, a factor that should be reflected in global investment portfolios. For long-term investors, this reality underscores the appeal of allocating to U.S. equities as a core component of diversified foreign exposure. The practical takeaway is straightforward: holding an exchange-traded fund (ETF) designed to track the S&P 500 would have performed exceptionally well for UK investors since the financial crisis, illustrating how a simple, widely diversified vehicle can capture broad U.S. equity strength. This year alone, the index of America’s largest companies by market capitalisation has risen by 25 per cent, a substantial gain that highlights the resilience and breadth of the U.S. market. However, it is important to note that gains from an non-hedged position are influenced by movements in the currency pair, with the pound-to-dollar exchange rate playing a meaningful role in translated returns for UK investors.
The politics of momentum: Trump, markets, and perception
The relationship between political leadership and market momentum often attracts intense scrutiny, and the narrative surrounding President Trump’s influence on financial markets offers a revealing case study in how perception can shape investment decisions. The stock market’s ascent over his tenure has been used by supporters to frame a broader story about economic policy, regulatory posture, and investor confidence. From a communications perspective, tying market outcomes to the actions of a single leader creates a compelling storyline that resonates with vast audiences, even when the underlying drivers of stock returns are complex and multifactorial.
Yet, for sophisticated investors, it is essential to disentangle political rhetoric from the fundamentals that actually drive market returns. Corporate earnings, technological innovation, globalization, monetary policy, global trade dynamics, and investor risk appetite collectively shape the trajectory of major indices. In this sense, the risk of anchoring is not merely a matter of optics but a practical investment concern: if the market’s momentum is attributed primarily to a political figure rather than to structural advantages within the economy, future performance could disappoint if policy dynamics shift or if external shocks disrupt the prevailing trend. The potential for a narrative to outpace reality is a reminder that investment success rarely rests on a single factor, even when that factor is as high-profile as the leadership of a country with significant market influence.
Despite these caveats, the broader message remains robust: the United States possesses a vast array of high-quality companies across diverse sectors, including technology, healthcare, consumer goods, financial services, and industrials. This breadth contributes to a resilient earnings mix and dynamic innovation ecosystem that tends to support long-run equity performance. The significance for portfolios is not to chase headlines about political leadership, but to recognize where wealth creation has historically concentrated and how that concentration can be accessed efficiently through passive or low-cost exposure. In other words, rather than relying on sensational narratives, investors should focus on structural advantages—such as scale, liquidity, and diversified exposure—that the United States offers to global capital markets. These advantages translate into stronger potential for sustained growth and compounding over extended horizons, even in the face of short-term political noise.
Visualizing momentum versus fundamentals
To translate these ideas into actionable insight, it helps to visualize the difference between market momentum and fundamental value. Momentum can be driven by shifts in investor sentiment, macro data surprises, and policy signals that prompt rapid inflows into certain sectors or broad indices. This dynamic often leads to periods of outsized performance that may not be perfectly aligned with corporate earnings growth or valuation fundamentals. On the other hand, fundamentals reflect the actual ability of companies to generate profits, sustain competitive advantages, and deploy capital efficiently. A well-constructed investment approach acknowledges momentum as a driver of near-term returns but anchors expectations in long-run earnings power, cash flow generation, and capital discipline.
Investors who understand this distinction tend to favor disciplined strategies, such as broad-based equity allocations through passive index exposure, complemented by periodic reviews to ensure alignment with risk tolerance and long-term goals. In the context of the U.S. market, the breadth and depth of listed companies provide a robust foundation for such strategies, allowing for a reliable capture of market-wide growth with relatively low tracking error when using a broad index ETF. The narrative around political leadership can inform sentiment, but it should never substitute for a rigorous assessment of the underlying drivers of earnings and cash generation that sustain market advance over time.
The United States as a hub for world-class companies and its impact on global portfolios
America’s status as the home of an exceptionally large and diverse set of world-class corporations has long been a defining feature of global finance. The scale, innovation, and capital markets infrastructure that characterize the United States foster an environment in which leading firms can invest heavily in research and development, pursue strategic acquisitions, and expand into new markets with a degree of efficiency and speed that is hard to match elsewhere. This dynamic has a direct bearing on how global portfolios are structured. For international investors seeking to participate in the growth of the world’s most influential companies, exposure to U.S. equities often represents a central pillar of diversification strategies.
One practical implication is that a passive investment vehicle that tracks U.S. large-cap equities, such as an ETF mirroring the S&P 500, offers broad access to this ecosystem. The S&P 500 is widely regarded as a barometer of U.S. corporate health because it encompasses a curated cross-section of leading firms that collectively reflect the state of the American economy. By holding a fund that tracks this index, international investors can gain exposure to a representative sample of U.S. corporate strength without needing to select individual stocks or sectors. This approach can yield a balance of growth potential and risk reduction achieved through diversification across dozens of companies.
From a portfolio construction perspective, the U.S. equity market’s size and liquidity confer practical advantages for long-term investors. Liquidity reduces the cost of entering and exiting positions, which is particularly valuable for investors who operate in global markets and may need to rebalance periodically in response to changing risk profiles or policy developments. The breadth of the U.S. market also helps to spread risk across multiple sectors with varying cycles, which can improve resilience during periods of market volatility or macro shocks. Consequently, for investors who aim to optimize their global exposure, allocating a substantial portion to U.S. equities can be a prudent strategy to anchor growth while complementing exposures to developed and emerging markets elsewhere.
The role of corporate earnings and innovation ecosystems
A central reason for the U.S. market’s appeal lies in its vibrant innovation ecosystem and the ability of leading firms to translate breakthroughs into sustainable earnings growth. Companies that dominate global markets in technology, health care, consumer platforms, and industrials have demonstrated a capacity to reinvest profits, reward shareholders, and adapt to evolving competitive landscapes. This dynamic tends to support durable earnings trajectories and healthier shareholder returns over extended periods. For global portfolios, this translates into a potential advantage: exposure to U.S. equities can help participate in the compounding effects of innovation-driven growth, particularly when combined with thoughtful risk management and currency considerations.
However, it is important to guard against overreliance on any single market. While the United States offers compelling opportunities, diversification remains essential to manage home-country risk, policy shifts, and macro uncertainties. A well-rounded international allocation should consider the trade-offs between potential upside in U.S. equities and the defensive qualities or recovery potential of other developed markets and select emerging markets. The goal is to craft a portfolio that can navigate varying economic cycles while maintaining exposure to the sources of long-run wealth creation that are most robust across different regimes.
The S&P 500 ETF as a tool for UK investors since the financial crisis
For UK investors, the practical question often centers on how to gain broad exposure to U.S. equities in a cost-efficient manner. An exchange-traded fund designed to track the S&P 500 offers an elegant solution. Such an ETF provides instant diversification across 500 of the largest U.S. companies, effectively capturing a large slice of the American corporate landscape. Since the global financial crisis, this approach has historically delivered notable performance for investors seeking simple, transparent access to the U.S. equity market. The combined effect of broad exposure, low fees, and the structural strength of the constituent firms has contributed to compelling long-run results that are attractive to long-term savers and institutions alike.
From a practical standpoint, the ETF structure presents several advantages for UK investors. First, liquidity in widely traded S&P 500 ETFs tends to be high, enabling relatively tight bid-ask spreads and efficient execution for those who require timely entry and exit. Second, the transparency of the index and its holdings provides clarity about what the investment represents, which is crucial for investors who track performance against a benchmark and who need to communicate strategy to stakeholders. Third, the cost advantage of passive vehicles means lower ongoing charges relative to many actively managed funds, preserving more of the upside from the underlying market returns. These characteristics align well with the preferences of many global investors who favor cost efficiency, transparency, and straightforward investment theses.
Historical performance and currency translation considerations
The performance of the S&P 500 in recent years has been robust, with substantial gains that reflect broad-based strength across multiple sectors. In the specific context of the period under discussion, the index rose by 25 per cent in a single year, a magnitude that underscores the attractiveness of a U.S.-centric sleeve within a diversified portfolio. Nevertheless, for UK investors, currency movements between the pound and the dollar can significantly affect realized returns when foreign earnings are converted back into local currency. An unhedged exposure to U.S. equities means that any depreciation or appreciation of the pound relative to the dollar will amplify or dampen the dollar-denominated gains when translated into pounds. This currency dynamic is a critical consideration for investors who must evaluate how foreign exchange risk interacts with equity performance.
The decision to hedge or not hedge currency risk is not purely a financial calculation; it reflects an investor’s risk tolerance, time horizon, and views on currency trajectories. Hedging can help stabilize returns when currency movements are volatile, reducing the potential for currency-induced swings in portfolio value. However, hedging also comes with costs and potential drawbacks, such as erosion of returns if the currency moves favorably for the investor’s home currency. Therefore, a thoughtful approach to currency management—whether through selective hedging, partial hedges, or a fully unhedged stance—can be an essential element of optimizing outcomes for UK or other non-dollar-based investors investing in U.S. equities through an S&P 500 ETF.
Practical guidance for investors
For individuals and institutions evaluating their global asset allocation, several practical guidelines emerge from this examination. First, consider placing a core allocation to U.S. equities via a broad, low-cost S&P 500 ETF to gain exposure to a broad cross-section of American market leadership. This core allocation should be balanced with exposure to other regions and asset classes to capture diversification benefits and to guard against country-specific risks. Second, pay careful attention to currency implications. If the investor’s base currency is not the U.S. dollar, determine whether currency hedging is appropriate given the risk tolerance, horizon, and volatility environment. Third, maintain a disciplined rebalancing approach. Over time, the relative performance of U.S. equities versus other asset classes will shift, and a structured rebalancing plan helps ensure that the portfolio retains its intended risk/return profile.
In addition, investors should be mindful of the broader macro backdrop, including inflation dynamics, monetary policy, fiscal policy, and global trade developments, all of which can influence both U.S. equity performance and currency movements. By combining a transparent, low-cost S&P 500 exposure with prudent currency management and a well-diversified multi-asset portfolio, UK investors can position themselves to participate in the upside of the U.S. market while managing downside risk and maintaining alignment with their long-run investment objectives.
Currency dynamics: how GBP/USD affects hedged vs unhedged equity returns
Currency movements can significantly alter the realized returns of international investors who allocate to U.S. equities through an S&P 500 ETF. When returns are measured in U.S. dollars, the performance of the underlying index may appear strong; however, when those returns are converted back to the investor’s home currency—such as the British pound—the impact of exchange rate fluctuations becomes apparent. The pound-to-dollar exchange rate serves as a critical variable in translating dollar-denominated gains into domestic currency terms. If the pound strengthens against the dollar, the translated return for UK investors may be dampened, potentially masking the true strength of the U.S. market in dollar terms. Conversely, if the pound weakens against the dollar, the same dollar return can appear more generous when translated into pounds, enhancing the perceived performance.
This currency effect adds a layer of complexity to decision-making around hedging. An unhedged position exposes the investor to currency risk as a natural byproduct of holding U.S. equities through a dollar-denominated instrument. While this approach can amplify gains when the home currency weakens against the dollar, it can also exacerbate losses when the home currency strengthens. Hedging, on the other hand, aims to neutralize currency fluctuations by using financial instruments to offset potential moves in exchange rates. Hedging can provide more stable, predictable returns in home currency terms, but it comes at a cost, and it can reduce upside if currency moves go in the investor’s favor.
Practical implications for hedged versus unhedged exposure
The choice between hedged and unhedged U.S. equity exposure should be guided by a coherent set of considerations, including risk tolerance, investment horizon, currency outlook, and cost constraints. For investors with long horizons and a tolerance for currency risk, an unhedged approach may deliver higher expected returns when the home currency is relatively weak or expected to trend weaker against the dollar. In such cases, currency movements can contribute positively to overall performance, complementing the underlying equity gains. For investors who prioritize stability and predictability in home currency terms, a hedged exposure can reduce volatility and shield against adverse currency swings, even if it entails a lower potential upside.
From an allocation perspective, a blended approach may offer an optimal balance: maintaining a core unhedged position to participate in potential currency-driven upside, while using a partial hedge to dampen downside risk and provide a degree of insulation during periods of pronounced currency volatility. This approach can help investors manage the interplay between equity performance and currency movements, ensuring that the portfolio remains aligned with overarching objectives and risk tolerances.
Implementation considerations
When implementing currency management for U.S. equity exposure, investors should consider the availability and design of hedging strategies through ETFs, futures, or other derivatives. Some S&P 500 ETFs are offered in hedged variants that seek to mitigate currency risk, while others provide unhedged exposure. The cost differentials between hedged and unhedged vehicles reflect the complexity of hedging, roll costs, and the effectiveness of the hedge in changing market environments. Investors should also consider tax implications, trading costs, and the potential impact of currency hedges on liquidity and tracking error relative to the underlying index. A well-structured plan should establish clear guidelines for when hedging intensity should be adjusted, how to rebalance currency hedges in response to shifts in macro fundamentals, and how to monitor the ongoing relationship between equity returns and currency movements.
Moreover, a robust investment framework should incorporate scenario analysis and stress testing to gauge how different currency trajectories could affect portfolio outcomes. Such exercises help ensure that the investment strategy remains resilient under a range of market conditions, including episodes of heightened volatility in currency markets or sudden policy shifts that affect exchange rates. By incorporating currency awareness into the allocation decision, investors in the United Kingdom—and elsewhere—can more effectively manage the risk-reward profile of U.S. equity exposure and optimize outcomes consistent with their long-term goals.
Implications for investors seeking global diversification
For investors who aim to construct globally diversified portfolios, the case for including U.S. equities via broad-based exposure such as the S&P 500 ETF is compelling, but it should be balanced with deliberate regional and asset-class diversification. The United States represents a cornerstone of global equity markets, yet a well-rounded strategy recognizes the value of exposure to developed markets beyond the U.S., as well as selected emerging markets that present attractive growth and diversification benefits. Diversification across geographies can reduce idiosyncratic risk linked to any single country or policy regime while providing access to a broader set of growth drivers. A diversified approach can help smooth performance across cycles and better position the portfolio to capture opportunities in sectors or regions that may outperform in different macro environments.
Within a global framework, the S&P 500 ETF serves as a core U.S. equity holding that can anchor a larger allocation to equities while offering a transparent and cost-efficient vehicle for exposure to top U.S. businesses. However, investors should complement this core with strategic tilts toward other regions and asset classes that tend to perform in distinct phases of the economic cycle. For example, exposure to European equities, Japanese equities, and emerging markets can provide diversification benefits through varying exposures to inflation dynamics, monetary policy, and growth trajectories. The combination of a broad U.S. exposure with carefully selected international positions supports a more resilient risk-adjusted return profile over time.
Tactical considerations for portfolio design
From a portfolio design perspective, several tactical considerations emerge for investors contemplating global diversification. First, define a clear strategic allocation that aligns with long-term objectives and risk tolerance, using U.S. equity exposure as a foundational element. Second, incorporate periodic rebalancing to maintain target weights across regions and asset classes, recognizing that different markets will experience varying degrees of performance and volatility. Third, implement currency management thoughtfully, determining whether hedging is appropriate for non-dollar-based investors and, if so, at what level. Fourth, consider the role of fixed income and other asset classes to balance risk and provide ballast during market downturns, thereby enhancing the overall stability of the portfolio.
Investors should also remain attentive to structural factors that influence global markets, such as macroeconomic policy shifts, geopolitical developments, and technology-driven change. The ability to adapt to evolving conditions while maintaining core exposure to high-quality, globally competitive companies will likely differentiate successful portfolios over time. In sum, while the U.S. market offers compelling opportunities, a disciplined, diversified, and currency-aware approach is essential to achieving sustainable outperformance and risk management within a global investment framework.
Risks, caveats, and counterarguments
No discussion of U.S. equity exposure would be complete without acknowledging the risks and potential drawbacks that accompany a heavy reliance on a single market or a single index. While the S&P 500 has historically demonstrated robust performance and resilience, it is not immune to substantial declines or sector-specific downturns. Concentration risk remains a practical consideration for any portfolio that relies heavily on a broad U.S. market benchmark, particularly during periods of heightened macro uncertainty, policy surprises, or sector-specific shocks. Investors should be mindful of the potential for regime shifts that could alter the relative performance of U.S. equities compared with other regions, including changes in growth trajectories, inflation, and interest rate trends.
Currency risk adds another layer of considerations for non-dollar-based investors. The potential amplification of currency movements can either enhance or erode returns, depending on the direction of exchange rate changes and the investor’s hedging strategy. Even with hedging, costs and imperfect hedges may leave some residual exposure, influencing realized performance in ways that require continuous monitoring and adjustment. It is important to recognize that hedging is not a guaranteed shield against all currency-related volatility and that it introduces its own set of trade-offs, including potential tracking error relative to the unhedged benchmark.
Additionally, there are structural and valuation considerations to weigh. The S&P 500 is a large-cap, U.S.-centric index that captures a broad slice of the American economy but may underrepresent certain themes or sectors that are more prominent in other regions. Active management, while offering potential alpha, comes with higher costs and varying success rates. The choice between passive index exposure and active management should be guided by the investor’s objectives, cost constraints, and confidence in the chosen investment approach. Diversification across geographies and asset classes helps mitigate these risks but does not eliminate them entirely.
Forward-looking risk assessment
Looking ahead, investors should remain attentive to the evolving environment for U.S. equities, currency markets, and global economic dynamics. The trajectory of policy decisions, corporate earnings growth, and external shocks such as geopolitical tensions or supply chain disruptions can all influence performance. A prudent approach involves regular reassessment of the portfolio’s exposure to U.S. equities relative to other regions, a careful examination of currency hedging strategies, and ongoing monitoring of risk-adjusted return metrics. By maintaining a disciplined process that emphasizes diversification, cost efficiency, and strategic currency management, investors can better position themselves to navigate uncertainty and pursue sustainable long-term growth.
Historical context and forward-looking considerations
The period surrounding the financial crisis and subsequent years highlighted the enduring appeal of broad-based U.S. equity exposure for investors seeking growth alongside a diversified risk profile. The S&P 500’s resilience, the strength of corporate earnings, and the breadth of market leadership across multiple sectors have converged to form a compelling narrative for U.S. equities as a cornerstone of many international portfolios. While political headlines can influence sentiment in the near term, the longer-term trajectory of U.S. corporate fundamentals suggests that American listed companies will continue to play a central role in global investment strategies.
As investors look toward the future, several themes merit ongoing attention. Innovation and productivity gains within the United States are likely to continue underpinning earnings growth for leading companies, particularly in technology, healthcare, and consumer services. The global economy may experience shifts in growth patterns, currency regimes, and monetary policy that could alter relative attractiveness across regions. With this in mind, a balanced, forward-looking approach that blends core U.S. exposure with well-considered international diversification stands as a prudent framework for building resilient portfolios capable of withstanding volatility while pursuing sustainable wealth accumulation.
Conclusion
In sum, while political narratives about stock market momentum can shape public perception, the more durable driver of wealth creation for investors lies in the underlying strength of the economy and its most influential companies. The United States remains home to a broad ecosystem of world-class firms, a reality that should be reflected in global portfolios through strategic exposure to U.S. equities. For UK investors in particular, an ETF tracking the S&P 500 offers a practical, cost-efficient gateway to this expansive market, delivering substantial potential upside while presenting currency considerations that must be thoughtfully managed. The 25 per cent gain observed in the current year underscores the magnitude of U.S. market strength, but it also serves as a reminder that currency movements can alter the realized outcomes when translated into home currency. A well-structured approach—rooted in diversification, currency management, and disciplined rebalancing—can help investors harness the upside of American market leadership while maintaining resilience against the inevitable ebb and flow of political and economic cycles. By keeping a clear-eyed focus on fundamentals, investors can translate broad market momentum into meaningful, long-term value within a globally diversified investment program.
