Concentration Risk in 'Magnificent Seven' Emerges: Janus Henderson Says Capital Begins Shifting to Overseas Markets

Julian McManus, Portfolio Manager of the Global Alpha Equities team at Janus Henderson Investors, stated that as market concerns grow over the excessive weighting of the 'Magnificent Seven' U.S. tech giants, investors are increasing their exposure to overseas equities and reassessing global asset allocations rather than concentrating heavily in large-cap American technology stocks.

Speaking to CNBC, McManus noted, "There is indeed a trend of more capital exploring markets outside the U.S." As of March 31, Janus Henderson managed approximately $480 billion in assets.

According to LSEG data, the MSCI ACWI ex-US Index has risen over 8% year-to-date, outperforming the S&P 500's 6.8% gain, indicating that international markets have recently begun to outpace U.S. equities.

McManus pointed out that in recent years, massive capital flows into a small number of large U.S. tech stocks have exposed portfolios to high levels of concentration risk.

"The Magnificent Seven account for nearly half the weight of the entire index, meaning investors are essentially all-in on just a few companies," he said. "If these stocks reverse course, portfolios could face significant pressure."

However, McManus emphasized that this does not represent a full-scale withdrawal from U.S. markets, but rather a reassessment of global allocation ratios prompted by the relative strength of overseas markets.

"I wouldn't call this a mass exodus or panic," he said. "Rather, the market is at least open to discussing whether overseas exposure should be increased."

On geopolitical and political factors, he believes their impact on asset allocation is limited, with investors still prioritizing returns above all else.

McManus added that most investment advisors and investors remain highly pragmatic, with capital ultimately flowing to markets offering higher returns, rather than being swayed excessively by political considerations.

Regarding regional allocations, he highlighted several attractive markets. In Europe, he favors European bank stocks; in Japan, banks and life insurers; and in South Korea, he maintains a positive outlook on Samsung Electronics (SSNLF-US).

He noted that while the South Korean market has recently undergone a sharp correction, this very downturn has brought investment value to many Korean companies.

McManus specifically expressed strong confidence in Samsung Electronics, arguing that the market continues to underestimate the long-term growth potential of its foundry business, and that the current share price does not fully reflect its intrinsic value.

For China, he favors Tencent Holdings (TCEHY-US) and CATL. In European defense, he highlights BAE Systems (BAESY-US) and Hyundai Rotem. In healthcare, he favors argenx (ARGX-US).

In the UK, he recommends AstraZeneca (AZN-US) and NatWest Group (NWG-US); in Canada, Canadian Natural Resources (CNQ-US) and Teck Resources (TECK-US).

On artificial intelligence investments, McManus said Janus Henderson maintains disciplined valuation standards, preferring to invest in the semiconductor supply chain rather than directly betting on the ultimate winners of AI applications.

"Without semiconductors, there is no AI," he said, emphasizing that the firm continues to focus on bottom-up stock selection rather than making large bets on single industries.

McManus also believes the market still underestimates the long-term returns from AI investments. Citing Alphabet's (GOOGL-US) Google as an example, he noted that if one examines Google's return on invested capital (ROIC) over recent quarters, the metric bottomed about three quarters ago and has since rebounded sharply—indicating that AI investments are beginning to translate into tangible returns. This trend, he said, is evident not only at Google but across major hyperscale cloud providers.

Additionally, he remains optimistic about India's long-term development prospects but, based on valuation considerations, currently maintains an underweight stance on Reliance Industries—the country's largest company—intending to increase exposure only when valuations become more attractive.