Investors should think twice before defaulting to global equity funds, with one wealth manager arguing they could expose portfolios to risks that are poorly understood and poorly timed.
Brian Dennehy, managing director of Dennehy Wealth, said: “You don’t want to buy global funds because there’s a hidden US risk.”
His warning comes at a point when several macroeconomic forces are shifting at once, reshaping how portfolios behave and what diversification really offers. Dennehy argued that investors are moving into a more fragile phase of the market cycle, where long-standing assumptions about asset allocation may no longer hold.
“What’s happening right now is that three big risks are converging,” he said. “This isn’t about one of them – it’s about all three moving at once.”
The first is a resurgence in geopolitical risk. While markets have so far absorbed conflict relatively calmly, Dennehy said the deeper concern lies in second-order effects. Rising energy costs and disrupted supply chains could push inflation higher, forcing bond yields up and putting pressure on equities.
At the same time, investors face the possibility of more structural shifts, including capital controls and a more fragmented global economy. These risks, he argued, are not yet fully reflected in asset prices.
“In a more aggressive world, with more war, capital controls should be expected,” he said. “Money gets locked into countries overnight.”
This backdrop feeds directly into his concerns about global funds. While marketed as diversified, many carry a heavy weighting to US equities, leaving investors exposed to a single market at a time when geographic risk is rising.
“Many global funds have about 60% in the US. That has disaster written all over it,” Dennehy said.
His second concern is the speed of technological disruption, particularly from artificial intelligence. While often framed as a growth story, Dennehy said the scale and pace of change could create both opportunities and dislocations across industries and labour markets.
“This isn’t an upgrade, it’s a different class of problem,” he said, pointing to the rapid shift from AI as a tool to systems that can complete tasks autonomously. The sums being invested underline the scale of the shift, but they also raise familiar risks.
The third and most structural risk comes from what Dennehy described as the late stage of a long-term economic cycle, drawing on the framework popularised by Ray Dalio. In this phase, also called ‘stage six’ people see rising debt, political tension and weakening institutions combine to create a more volatile backdrop for markets.
“Stage six isn’t a prediction, it’s already begun,” he said.
In this environment, traditional diversification is unlikely to offer the protection investors expect. The experience of 2022, when both bonds and equities fell together, could be repeated on a larger scale, he said. “Bonds and equities will fall together again, but harder. Traditional diversification will fail when it’s needed most.”
Against this backdrop, Dennehy urged investors to rethink how portfolios are constructed, with a focus on resilience rather than broad market exposure.
Value and income strategies are among the areas he sees as more attractive, particularly in regions such as the UK and parts of Asia, where valuations remain lower. These areas have already begun to outperform, reflecting a shift away from expensive growth stocks.
More defensive assets also play a role. He highlighted index-linked and short-dated bonds as a way to manage inflation risk, alongside commodities where supply constraints and demand trends remain supportive.
Energy is another area of interest, with a particular emphasis on more reliable sources. Nuclear, for example, offers consistent output compared with intermittent renewables and could benefit from increased investment.
Within the AI theme, Dennehy favours infrastructure over the large technology companies that dominate indices. The “picks and shovels” of the sector, he argued, offer more durable exposure to long-term growth without relying on elevated valuations.
He also emphasised the importance of liquidity and flexibility, particularly in more volatile markets.
“Cash is a valid investment. It is liquid and has optionality. In a crisis, cash is what you need,” he said.
More broadly, he warned that the current environment requires a more active approach to portfolio management. Investors can no longer rely on a buy-and-hold strategy and should instead be prepared to reassess positions regularly.
“This is not a buy-and-forget market. Vigilance is critical,” he said.
That extends to understanding exactly what each holding is doing within a portfolio, from its role in generating income to its sensitivity to inflation or market shocks. Concentration, duplication and unclear positioning all increase risk at a time when markets may move sharply and without warning.
“You can’t control the chaos and you can’t predict timing, but you can prepare,” he concluded.