Rethinking equity allocation from a global perspective

Gene Podkaminer Vincent Fu

07 November 2025

Due to the relatively high level of volatility associated with holding equities, it is hard to escape their gravitational pull on total portfolio risk and return.

Among public asset classes, equities are associated with significant risk (and expected return). Other exposures, such as interest rates and inflation, can certainly impact the total portfolio, but the magnitude stemming from equity is simply greater. Given how much risk is at stake, it makes sense to spend the time carefully thinking through and crafting an equity portfolio.

Equity’s outsized risk contribution to the total portfolio

Past results are not a guarantee of future results.
Source: Capital Group. Hypothetical portfolio includes two assets modeled by the Bloomberg US Aggregate Bond Index and the MSCI USA Index. For further information about the assumptions reflected in this hypothetical illustration, see disclaimers.

As the relationship between political borders, country of domicile and revenue attribution has changed materially over the last three decades, this piece examines approaches to structuring an equity portfolio in the current macroeconomic regime.

Common equity approaches, such as overweighting small-cap, value or global equities, would have significantly lagged a simple cap-weighted approach over the past 15 years. This challenges conventional wisdom and highlights the risks of deviating from a neutral benchmark without strong conviction.

In this paper, we conclude investors should begin with a globally diversified equity portfolio as a neutral starting point. We believe this approach avoids arbitrary regional segmentation and allows for more thoughtful, flexible allocation decisions that reflect the full opportunity set.

Gene Podkaminer is a senior asset allocation strategist at Capital Group. He has 25 years of investment industry experience and joined Capital Group in 2025. Prior to joining Capital, Gene worked as an executive vice president and head of research at Franklin Templeton Investment Solutions, where he chaired the global investment committee and directed research activities across markets and asset classes, strategic and tactical asset allocation, and manager due diligence, using quantitative and fundamental approaches. Before that, he was a senior vice president in the Capital Markets Research group at Callan Associates and a principal in the Client Advisory Group at Barclays Global Investors. Gene has authored numerous articles published in the Journal of Portfolio Management and Journal of Investing focusing on risk factors in portfolio construction, asset allocation methodologies and the impact of macroeconomic shocks to multi-asset portfolios. He also writes curriculum for the CFA Institute. He holds an MBA from Yale School of Management and a bachelor's degree in economics from the University of San Francisco. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of San Francisco. Gene is based in San Francisco.

Vincent C. Fu is a senior client analytics specialist at Capital Group. He has 21 years of industry experience and has been with Capital Group for 10 years. Prior to joining Capital, Vincent worked as an associate at William & Henry Associates. Before that, he was a senior high yield analyst at Churchill Pacific Asset Management. He holds an MBA from New York University and a bachelor's degree in business economics from the University of California, Los Angeles. He also holds the Chartered Financial Analyst® designation. Vincent is based in Los Angeles.